This is because net profit includes indirect expenses that cannot be attributed to an inventory.Ĭonsidering the above example, our revenue from operations is Rs. To simply put, reducing profit from sales.
AVERAGE INVENTORY FORMULA RETAIL HOW TO
How to derive the value of Cost of goods sold?Ĭost of goods sold is derived simply by reducing the profit from the revenue generated. 1,00,000 is your cost of inventory or cost of goods sold. 1,20,000 is the revenue generated from the operations and Rs. So, the cost of sales is the actual value of inventory which has been converted into sales.įor example, finished goods worth Rs 1,00,000 was sold for Rs. Revenue from operations means your sales. Here, Cost of goods sold is nothing but the cost of revenue from operations. Inventory Turnover Ratio = Cost of goods sold / Average inventoryīefore we apply the above formula, let’s understand the cost of goods sold, average inventory and how to determine these. Formula to calculate inventory turnover ratio In simple words, the number of times the company sells its inventory during the period. Inventory turnover ratio explains how much of stock held by the business has been converted into sales. It is also called a stock turnover ratio.
Inventory turnover ratio is an accounting ratio that establishes a relationship between the revenue cost, more commonly known as the cost of goods sold and average inventory carried during the period. Why inventory turnover ratio is important?.Formula to calculate inventory turnover ratio.
0 kommentar(er)
