Inventory Turnover Ratio
This ratio indicates the efficiency of the firm in selling it’s product it is calculated by dividing the cost of goods sold by average inventory.
Inventory Turnover Ratio =
Cost of goods sold/Average Stock
This ratio indicate the rate at which the inventory is converted into sales and then into cash. It also indicates when there is over stocking or under stocking of finished goods. It also helps to determine the liquidation of concern. The average inventory is calculated by taking stock level of raw materials work in progress. Finished goods at the end of each worth adding them up and dividing by twelve cost of goods sold is sales of finished goods minus gross profit. The stock turnover of 8 times of year ideal.
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