COMPARE
COGS-based vs sales-based turnover.
Both numerators are in current use. The COGS-based ratio is preferred under GAAP and matches the published benchmark medians. The sales-based ratio inflates by the gross margin.
The inflation arithmetic
At a 35 percent gross margin, sales is 1.54 times COGS. Sales-based turnover therefore reads 1.54 times the COGS-based ratio on the same inventory book. At a 60 percent gross margin (software margins on hardware sleeves) the inflation factor is 2.5.
When the sales variant is acceptable
- Internal flash reporting where consistency over time matters more than absolute level.
- Retail merchandise plans that originate at retail price.
- Boards that have used the sales variant historically; switch with a one-time bridge.
When it actively misleads
- Lender or auditor reporting.
- Comparison against NYU Stern, Damodaran, or RMA medians.
- Borrowing-base certificates and covenant calculations.
Conversion
Multiply the sales-based ratio by (1 minus gross margin) to convert to the COGS-based ratio. A sales-based 8.0x at 35 percent margin equals a COGS-based 5.2x.