6.2.8.

Activity/Turnover Ratios
ASsets employed in the business to generute revenuc and profits. These assets
are
Van managed efticiendy for this purpose. Better managed assets help to generate
pecu fits for the busines. These activity rauos are also known as turnover ratias as
big ias show the intensity with which the assets are converted into
these. sales. Several
r a i o s are
as follows:
tvity
Activity/lTurnover Ratios

Fixed Assets Turnover Ratio

Stock Turnover Ratio
Debtos Tumover Ratio
Creditors Tunover Ratio/
Working Capital Tumover Pavables Turnover Ratio
Ratio
Total Asscts Turnover Ratio
 6.2.8.2. Stock Turnover Ratio or "Stock Velaci
This ratio is also known as 'Tnventory
Turnover Ratio'
ing sold and average inventory. The
abo. it shows the relationship between cost of g0ods
tormuta for calculating stock turnover ratio is shown
below
Stock Cost of Goods Sold
Turnover Ratio=-
Average Înventory
Cost of Goods Sold = Saies -

Gross Profit
Or
Cost of Goods Sold =Opening Stock + Purchases + Direct Expenses -

Ciosing Stock

Stock+Closing Stock
Average Stock= pening
2

Note:
Closing stock figure may be used if opening stock amount is not available.
2) Net sales numbers may be used in place of Cost of Goods Sold

Net Sales
Stock Turnover Ratio =
Average Stock

Iaterpretation: This ratio shows the speed with which stock is converted into sales. A
unit of investment made
high ratio indicates that the company generates higher sales per
in stocks. Conversely, low ratio shows that the inventory is lying idle, poor performance
of stock are
of the business, over capitalisation of stock, other expenses related storage
to

maintain proper inventory turnover ratio.

high, etc. t is important for a business to
 Acdift Rattus

) tnventory Twmover Ratio

LoSt o Reuenue diom bperatton
Aretaqe n Veu to

o sE Retenue Eom. operatton Co) Cost q Jcods, Sdlol

Keuenue om operattons Gvo Prot

Ketentte Gvos los.
fiom opeNattow+ bo los.

penng Intentey + Net Puthasast lvecb&p

etoctng tente

Cost matertal lonSumed +

Puichase to 10/17
t
Changee n-tnventotès q dSed Zoods, toovt in poq
and ock-tn- Trade t frect 8xpense

ANeraqe tnuentee =Opentn Ctor

tnyenty hyerto
1) The following information is given about a company:

Particulars Particulars
Gross Profit 30,000 Net Profit 14,000
Cost of Goods Sold 1,20,000 Net Fixed Assets 60,000
Opening Stock 29,000 Non-operating Expenses 9,000
Closing Stock 31,000Non-operating Income 5,000
ratios:
From the above information, calculate the following
i) Gross Profit Ratio
ii) Stock Turnover Ratio
ii) Operating Ratio
Ratio is 8
[Ans: Gross Profit Ratio is 20%, Stock Turnover Ratio is 4 times, Operating
 Rs. 31.000: Purchases Rs. 2,42.000
2. Opening stock Rs. 29,000. Closing stock
Calculate stock turn over ratio.
IMadras, B.CAJB.Sc. Oet. 2003

Ans: Stock Turnover Ratio: 8 tines

calculate the Stock Turnover ratio
13. From the following particulars
(a) Opening stock Rs. 40,000

(b) Closing stock Rs. 44,000

Rs. 4.15,000
(c) Sales
20%
(d) Gross profit ratio
Madras, M.Com. Sep. 1988
Cost ofsales : Rs. 3.32.008;
Ans Stock turnover ratio :7.90;
Averagestock: Rs. 42.000
atma andCompany supplies the following information regarding the year ended
1-12-2004. Cash sales Rs. 80,000; credit sales Rs. 2,00,000; Returns inward Rs.
.000. Opening stock Rs. 25,000; Closing stock Rs. 30,000: Gross profit ratio is
5Find out inventory turnover ratio.
IThiruvalluvar, B.B.A., Nov. 2005;
Madras, B.C.S. April 2004; B.A. Corp. C & M, April 1998
Ans: Inventory turnover ratio: 7.36; Cost of sales: Rs. 2,02500;
Average stock: Rs.27,5001
15. Compute Inventory Turnover Ratio for three years shown below:
1992 1993 1994
Rs. Rs. Rs.
Cost of goods sold 7,60,417 8,54,413 9,55,817
Average inventory 3,36,420 3,08,243 3.10,412
IMadras, B.A. Corp., Oct 1998
Ans: Inventory turnover ratio : 1992:226times
1993 2.77 times
1994: 3.08times
Particulars Note No.

L. Revenue from Operations 10,00,000

I. Other Income 50,000
IIL. Total Revenue (+ 1) 10,50,000
IV. Expenses
Purchases of Stock-in-Trade 5,00,000
Change in Inventory of Stock-in-Trade 25,000
Employees Benefíit Expenses 1,20,000
Depreciation and Amortisation Expenses 5,000
Other Expenses
20,000
Total Expenses 670,000
V. Profit before Tax (1 -

V) 3,80,000
Note to Accounts

Particulars
1. Change in Inventory of Stock-in-Trade
Opening Inventory 1,00,000
Less: Closing Inventory
75,000
25,000
33. Fromthe following information,calculate InventoryTunover Ratio; OperatingRatio; andGross ProfitRatio:
Opening Inentory 28,000|Carriage inwards 4,000
Closing Inventory T22,000 OfficeExpenses 4,000
Purchases 46,000 Sellingand Distribution Expenses 2,000
Revenuefrom Operations (Net Sales) T80,000 Capital Employed 72,00,000
Return T 10,000