This is one of the many ratios used by auditors in ratio analysis. As with other ratios, the auditor compares the actual value of the ratio at a point of time with the expected value of the ratio.
Any unexpected change is investigated.
To avoid the actual value of the ratio biasing the auditor's estimation of the expected value, auditors estimate the expected value before calculating the actual value. The value of opening and closing inventory in the ratio normally includes the value of work in progress. A high value indicates that inventory is turning over quickly, a low value that it is turning over slowly. By itself, the ratio does not convey alot of meaning. Comparison of the ratio provides more meaningful information.