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The formula used to calculate inventory turnover is the cost of goods sold (COGS) divided by average inventory. This metric measures how efficiently a company is managing its inventory and how often it sells and replaces inventory over a specific period.

Inventory turnover is vital for businesses as it reflects their efficiency in turning goods into sales. A high turnover rate suggests strong sales and effective inventory management, indicating that the company is not holding excess stock that could lead to increased holding costs or obsolescence. Conversely, a low turnover rate may suggest overstocking issues or weaker sales, potentially leading to cash flow problems.

By using COGS, which represents the direct costs attributable to the production of the goods sold during a specific period, the calculation provides a clear link between sales activity and inventory management. The average inventory is typically calculated by taking the sum of the beginning and ending inventory for the period and dividing it by two, which helps in smoothing out seasonal fluctuations.

This method is widely accepted and used in analyzing inventory performance across various industries. The other options do not reflect the appropriate relationship necessary for accurately calculating inventory turnover.