Net Sales to Inventory (Sales to stock) yields a figure different from Inventory Turnover because which is true?

• A. It measures the sales volume generated by current inventory in comparison with peers
• B. It uses average accounts payable instead of average inventory
• C. It uses net sales divided by inventory, whereas Inventory Turnover uses cost of goods sold and average inventory
• D. It measures cash conversion cycle

Answer: (C)

This item tests the difference between a revenue-based inventory measure and a cost-based turnover measure. Net Sales to Inventory uses net sales in the numerator and inventory in the denominator, showing how much revenue is generated per dollar of inventory. Inventory Turnover uses cost of goods sold in the numerator and average inventory in the denominator, indicating how many times inventory is turned over or replaced during the period.

Because the two ratios are built from different inputs, they will generally yield different values. Net sales are typically larger than cost of goods sold because net sales include gross profit, discounts, returns, and allowances, while COGS reflects only the cost of the goods sold. Additionally, using ending inventory versus average inventory (as well as seasonality in prices and volumes) changes the denominator in the two measures. All of this means the figures don’t align and will usually differ.