In calculating inventory turnover, why is cost of goods sold used as the numerator? As the inventory turnover increases, what increasing risk does the business assume?

The frequency with which a corporation sells its tangible goods is measured by inventory turnover. The turnover rate indicates whether a company's items are selling rapidly or slowly. As a result of this knowledge, the corporation is better able to make business decisions.

The cost of products sold is calculated for two reasons:

a) As the standard stock figure is calculated on a cost basis, cost should be used instead of the retail price.

b) As the turnover estimate guarantees the number of times the stock was sold relative to total expenses incurred during the period, the cost of goods sold should be considered a representation of total recovered expenses.

An increase in stock can indicate a stock out or a shortage of stock.