When analyzing the operating performance of a merchandise firm, inventory turnover and the gross profit ratio are usually calculated. What do the inventory turnover ratio and gross profit ratio indicate?

What will be an ideal response?

The inventory turnover ratio indicates how often the average inventory balance is "turned over" or sold during an accounting period. Selling inventory is the most important thing a merchandise firm does, so analysts are keenly focused on trends in the inventory turnover ratio and how a company's turnover compares with other companies in the industry.

The gross profit ratio indicates the percentage of each dollar in revenue that remains after deducting the costs of acquiring merchandise. Again, this is a critical part of a merchandise concern's performance because it measures the ability to earn profit, before operating costs, from selling merchandise.