If Revenue from Operations is ₹8,00,000; Gross Profit Ratio 25%; Opening Inventory ₹1,00,000; Closing Inventory ₹60,000 then what is the Inventory Turnover Ratio of the company?

7.5 Times

The correct answer is option 2- 7.5 times.

Gross Profit Ratio = Gross Profit/Net Revenue of Operations X 100.
25 = (Gross profit/8,00,000) X100
Gross profit = 25 x 8,00,000/100
Gross profit = 2,00,000

Revenue from Operations = Cost of revenue from Operations - Gross profit
8,00,000 = Cost of Revenue from Operations - 2,00,000
Cost of Revenue from operations = 8,00,000 - 2,00,000
                                                 = 6,00,000

Average Inventory = (Opening inventory + Closing inventory)/2
                            = (1,00,000 + 60,000)/2
                            = 1,60,000/2
                            = 80,000

Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory
                                     = 6,00,000/80,000
                                     = 7.5 times