Inventory Turnover Ratio: This ratio is computed to determine the efficiency with which the-stock is used. This ratio is based on the relationship between cost of goods sold and rage stock kept during the year. It shows the rate with which the stock is turned into sales Lite number of times the stock in turned into sales during the year. In other words, this ratio reveals the average length of time for which the inventory is held by the firm.
Inventory/ Stock Turnover Ratio (\frac {\textit{Cost of goods sold}}{\textit{Average Stock}} )
Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses – Closing Stock
or, Cost of goods sold = Net Sales – ***** Profit
Average Stock = (\frac {\textit{Opeing Stock + Closing Stock}}{\textit{2}} )
Average Age of Inventory = (\frac {\textit{Day in a year}}{\textit{Inventory Turnover Ratio}} )
