**Inventory Turnover Ratio Calculation**

To calculate the inventory turnover ratio, we need to consider the following information:

- Opening Inventory: Not provided
- Purchases: Rs. 3,80,000
- Closing Inventory: Rs. 40,000

The inventory turnover ratio is a financial metric used to determine the efficiency of a company's inventory management. It indicates how many times a company's inventory is sold and replaced within a specific period. A higher turnover ratio generally indicates better inventory management and faster sales.

**Formula for Inventory Turnover Ratio:**

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

To calculate the average inventory, we can use the following formula:

Average Inventory = (Opening Inventory + Closing Inventory) / 2

**Calculating the Average Inventory:**

As the opening inventory value is not provided, we can assume it to be zero for simplicity. Therefore,

Average Inventory = (0 + Rs. 40,000) / 2 = Rs. 20,000

**Calculating the Cost of Goods Sold (COGS):**

To calculate the Cost of Goods Sold (COGS), we need to subtract the Gross Profit from the Revenue.

Gross Profit = 20% of Revenue
Revenue = RFO (Rs. 5,00,000)

Gross Profit = 20/100 * 5,00,000 = Rs. 1,00,000

COGS = Revenue - Gross Profit = 5,00,000 - 1,00,000 = Rs. 4,00,000

**Calculating the Inventory Turnover Ratio:**

Now that we have the COGS and the Average Inventory, we can calculate the Inventory Turnover Ratio using the formula mentioned earlier.

Inventory Turnover Ratio = COGS / Average Inventory
Inventory Turnover Ratio = 4,00,000 / 20,000 = 20

**Interpretation:**

The inventory turnover ratio of 20 implies that the inventory is being sold and replaced 20 times during the given period. This indicates that the company is efficiently managing its inventory and has a high sales turnover rate.

A higher inventory turnover ratio is generally favorable as it suggests that the company is able to sell its products quickly, minimize holding costs, and generate cash flow. However, it is essential to consider industry norms and compare the ratio with previous periods or competitors to gain better insights into the efficiency of inventory management.

GP=20%
GP=₹500000×20/100
GP=₹100000

CORFO=RFO-GP
CORFO=₹500000-₹1000000
CORFO=₹100000

NOW, WE KNOW THAT
OP.STOCK+PURCHASES+DIRECT EXPENSES-CLOSING STOCK=COST OF REVENUE FROM OPERATION


OP.STOCK=₹400000-₹380000+40000
OP.STOCK=₹60000

AVERAGE INVENTORY=(OP.STOCK+CL. STOCK)/2

AVERAGE INVENTORY= (₹60000+₹40000)/2

AVERAGE INVENTORY=₹50000


INVENTORY TURNOVER RATIO=CORFO/AVERAGE INVENTORY

INVENTORY TURNOVER RATIO=₹400000/₹50000

INVENTORY TURNOVER RATIO=8:1

plz confirm it