Evaluate inventory management using the gross profit and inventory turnover ratios.

- Two useful measures of how successful a company is at managing and controlling its inventory are the gross profit ratio (gross profit \(\div\) net sales) and the inventory turnover ratio (cost of goods sold \(\div\) average inventory).

- The gross profit ratio indicates how many cents of every dollar are available to cover expenses other than cost of goods sold and to earn a profit. The inventory turnover ratio describes how quickly inventory is purchased (or produced) and sold.