Inventory Turnover Ratio?

This information is available for PepsiCo, Inc. for 2002, 2003, and 2004.

(in millions) 2002 2003 2004
Beginning inventory $ 1,310 $ 1,342 $ 1,412
Ending inventory 1,342 1,412 1,541
Cost of goods sold 11,497 12,379 13,406
Sales 25,112 26,971 29,261

What is the inventory turnover ratio for respectively year?


Answers:    Inventory turnover ratio is defined as cost of goods sold divided by average inventory. Average inventory can be defined as (beginning inventory + closing moments inventory)/2. So the inventory turnover ratio for 2002 would be: 11,497/[(1,310 + 1,342)/2] = 8.67. Therefore in 2002 PepsiCo turned over their inventory approximately 8.67 times.
the most straight-forward method is cogs (cost of merchandise sold) / average inventory. another common method is sales/inventory. i prefer the former.

for the cogs method for 2002 it would be;
11497/((1310+1342)/2)
or 8.67
We can work out Invertory turnover ratio by

Cost of goods sold/Average Inventory

Average Inventory = Opening Inventory+Ending Inventory/2
You divide the Inventory Turnover Ratio as follows:

Cost of Goods Sold/ Average Inventory

2002: 11497/ (1310+1342/2) = 8.67

2003: 12379/ (1342+1412/2) = 8.99

2004: 13406/ (1412+1541/2) = 9.08

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