PART 10 : RATIO ANALYSIS

Inventory Turnover Ratio $RIIL What is Cost of Goods Sold? The total cost of raw materials for the goods that were actually sold during the year. What is Average Inventory? The average stock kept in the go down during the year. Example: - Cost of Goods Sold = ₹400,000 - Average Stock kept = ₹80,000 - Calculation = 4,00,000 ÷ 80,000 = 5 Times Interpretation: This means the company buys raw materials, makes products, and sells them completely 5 times in one year . This is good because it means stock is moving fast and not rotting in the warehouse. If the number is 1, it means the company takes a whole year to sell its stock, which is very bad because money is stuck in unsold goods. A high number is always better.