![]() A higher value of stock turnover ratio indicates that the company is able to sell the stock inventory relatively quickly, while a lower value means that the company holds the higher value of inventory at any point in time. It is important to understand the concept of stock turnover ratio as it assesses the efficiency of a company in managing its merchandise. Stock Turnover Ratio = Cost of Goods Sold / Average Inventory Relevance and Uses of Stock Turnover Ratio Formula Step 3: Finally, the formula for a stock turnover ratio can be derived by dividing the cost of goods sold incurred by the company during the period (step 1) by the average inventory held across the period (step 2) as shown below. Then the average inventory is calculated by computing the mean of the inventory at the beginning of the period and at the end of the period.Īverage Inventory = (Inventory at the Beginning of the Period + Inventory at the End of the Period) / 2 Step 2: Next, determine the inventory holding of the company at the beginning of the period and at the end of the period. The cost of goods sold is also known as the cost of sales.Ĭost of Goods Sold = Direct Labor Cost + Cost of Raw Material + Manufacturing Overhead Cost It primarily includes direct labor costs and cost of raw material along with manufacturing overhead costs. It is the sum of all the direct and indirect costs that can be apportioned to the job order or product. Step 1: Firstly, determine the cost of goods sold incurred by the company during the period. The formula for a stock turnover ratio can be derived by using the following steps: Source: Apple Inc Balance sheet Explanation Therefore, Apple Inc.’s stock turnover ratio for the year 2018 stood at 37.17 times.
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