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Concept: Activity Ratios - Inventory Turnover Ratio

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Inventory Turnover Ratio = (Cost of Goods Sold /Cost of Revenue from Operation)/Average Inventory

Cost of goods sold= Opening Stock + Net Purchases + Direct Expenses – Closing Stock

Cost of Revenue from Operations = Revenue from Operations – Gross Profit

Or

Cost of Material Consumed (including direct expenses) + Change in inventories of WIP and Finished Goods

Or

Opening Inventory + Net Purchases+ Direct Expenses – Closing inventory

Average Inventory = (Opening Inventory + Closing Inventory)/2

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