Question

From the following details, calculate Inventory Turnover Ratio:

Annual Revenue from Operations	₹ 2,00,000
Gross Profit Rate	25% on Cost
Inventory: Opening	₹ 38,500
Closing	₹ 41,500

Answer 1

Let the Cost of Revenue from operation be x.

Gross Profit = Revenue from operation − Cost of Revenue from operation

`25/100 xx x` = ₹ 2,00,000 − x

x + `25/100` x = ₹ 2,00,000

`125/100` x = ₹ 2,00,000

x = `(₹ 2,00,000 xx 100)/125`

Cost of Revenue from operation (x) = ₹ 1,60,000

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

= `(₹ 38,500  + ₹ 41,500)/2`

= `(₹ 80,000)/2`

= ₹ 40,000

Inventory Turnover Ratio = `"Cost of Revenue from Operations"/"Average Inventory"`

= `(₹ 1,60,000)/(₹ 40,000)`

= 4 Times