20.1 Stock Turnover Ratio

VCE Accounting Unit 4

1. 20.1 stock turnover ratio

2. It is important that stock purchased is turned into sales and therefore cash in as shorter time as possible 20.1 stock turnover ratio Supplier Business Customer How many days does it take to turn purchases of stock into sales? 1. Buy stock from suppliers (creditors) 2. Sell stock to customers

3. We can measure how long it takes for a firm to sell its stock with the Stock Turnover Ratio. This ratio tells us: The number of times stock has been turned into sales during the period The average numbers of days it takes to turn purchases of stock into sales Supplier Business Customer How many days does it take to turn purchases of stock into sales ? 20.1 stock turnover ratio

4. Stock Turnover Ratio can be expressed as: The number of times per year stock is turned over, i.e. turned into sales The average n umber of days it takes to turn purchases of stock into sales Stock Turnover Ratio = Average Stock Level Cost of Goods Sold Stock Turnover in Days = Cost of Goods Sold Average Stock x 365 OR… Stock Turnover in Days = 365 Stock Turnover Ratio 20.1 stock turnover ratio

5. Example : a business had the following end-of-year data from 2014 to 2015: What is the Stock Turnover Ratio for 2015 ? 2014 2015 Cost of goods sold 40000 Balance of Stock Control 18000 22000 Stock Turnover Ratio = Average Stock Level Cost of Goods Sold Stock Turnover in Days = Cost of Goods Sold Average Stock x 365 = 20000 40000 = 2.0 = 40000 20000 x 365 = 183days 20.1 stock turnover ratio

6. task In-class Homework SQ5 X