Rm cost

The raw material turnover ratio provides him with this information. It is expressed in number of
’times’. It is calculated as the expense on raw material, stores and spares during the year divided by
the average stock of inventory at any point of time during the year.

wip
The work-in-progress turnover ratio is the ratio of the total production cost (or total cost of
converting all the work in progress into finished goods during the year) to the value of the average
work-in-progress at any point in time during the year.

Finish goods
The ratio is calculated by dividing the cost of the goods sold during the year with the average stock
of finished goods held at any point of time during the year. Let us explain this with an example.
Higher the quantity and therefore the value of finished goods held by the business manager, lesser is
the number of times he sells all of it to replace it with newly produced ones. Higher will be the
carrying cost of the this finished goods inventory and the funds locked in it.

Higher the ratio, quicker is the inventory sold and faster are the funds unlocked for re-use. The ratio
helps the business manager target inventory levels to be maintained in relation to expected sales.

Debtor turnover ratio

Therefore,higher the debtors turnover, better it is for a company.

Creditors turnover
The ratio is calculated as the expenses on purchase of goods and services during the year
divided by the average trade payables and acceptances for the period.

High creditors turnover denotes that there is a short time between purchase of goods and
payment to creditors. It may as well indicate that the company is timely paying off its debts.