Calculate Inventory Turnover Ratio from the data given Below: 

 ParticularsAmount
(
Rs.)
 Particulars Amount
(
Rs.)
Inventory in the beginning of the year20,000Carriage Inwards5,000
Inventory at the end of the year10,000Revenue from Operations, i.e.Sales1,00,000
Purchases50,000 

State the significance of this ratio.

SOLUTION

Cost of Goods Sold = Opening Stock + Purchases + Carriage Inwards − Closing Stock
= 20,000 + 50,000 + 5,000 − 10,000
= 65,000

Average Stock  Opening Stock + Closing Stock / 2
= 20,000 + 10,000 / 2
= 15,000
Stock turnover ratioCost of Goods sold / Average Stock
 = 65,000 / 15,000
= 4.33 Times

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