From the following information, calculate inventory turnover ratio:
Revenue from operations = ₹4,00,000
Average Inventory = ₹55,000
Gross Profit Ratio = 10%
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) - 6.55 times.
Gross profit ratio = 10%
Gross profit ratio = Gross profit/ Revenue from operations x 100
10 = Gross profit/4,00,000 x 100
Gross profit = 10 x 4,00,000/100
= 40,000
Cost of goods sold = Revenue from operations - Gross profit
= 4,00,000 - 40,000
= ₹3,60,000
Average inventory = ₹55,000
Inventory turnover ratio = Cost of goods sold/ Average inventory
= 3,60,000/55,000
= 6.55 times