Question

From the following details, calculate the Inventory Turnover Ratio:

	₹
Cost of Revenue from Operations	9,00,000
Inventory in the beginning of the year	3,50,000
Inventory at the close of the year	2,50,000

Answer 1

Calculation of Average Inventory:

\[\text{Average Inventory} = \frac{\text{Opening Inventory} + \text{Closing Inventory}}{2}\]

$$\text{Average Inventory} = \frac{3,50,000 + 2,50,000}{2}$$

$$\text{Average Inventory} = \frac{6,00,000}{2}$$

$${\text{Average Inventory} = ₹ 3,00,000}$$

Calculation of Inventory Turnover Ratio:

$$\text{Inventory Turnover Ratio} = \frac{\text{Cost of Revenue from Operations}}{\text{Average Inventory}}$$

$$\text{Inventory Turnover Ratio} = \frac{9,00,000}{3,00,000} = 3$$

Inventory Turnover Ratio = 3 Times