Question

From the following details, calculate Inventory Turnover Ratio:

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

Answer 1

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

`25/100 xx ₹ 2,00,000` = ₹ 2,00,000 − Cost of Revenue from Operations

Cost of Revenue from Operations = ₹ 2,00,000 − `25/100 xx ₹ 2,00,000`

= ₹ 2,00,000 − ₹ 50,000

= ₹ 1,50,000

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"`

= `(₹ 1,50,000)/(₹ 40,000)`

= 3.75 Times