CORPORATE FINANCE

chandniwadhwani92
Finance Junkie
Posts: 166
Joined: Mon Oct 06, 2014 7:36 am

CORPORATE FINANCE

Postby chandniwadhwani92 » Thu Feb 19, 2015 2:54 pm

Invetory turnover ration-cost of good sold/ average stock

IF RATIO IS 16 TIMES COMPANY IS ABLE ACHIEVE SALES OF RS.16 AT AN AVERAGE STOCK LEVEL OF RE. 1
MY QUESTION
wHAT DOES THIS RATIO AND SENTENCE MAENS.HOW CAN C. MAKES SALES OF RS.16 WITH AN STOCK OF RE 1
PLZ EPLAIN THE MEANING OF THIS RATIO

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

CORPORATE FINANCE

Postby edupristine » Fri Feb 20, 2015 5:29 am

Hi,inventory turnover ratio is an efficiency ratio which measures how much average inventory is sold during the period of time. there are two ways of calculating this ratio:
1. Inventory Turnover Ratio= COGS/Average Inventory
2. Inventory Turnover Ratio= Sales/Average Inventory
Therefore, according your query, When Average inventory is Re. 1 and ITR is 16 times then sales can be Rs 16 using the second formula.


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