Definition of rate of turnover: Number of times a firm sells out its merchandise or finished goods inventory, computed by dividing the total sales revenue in a period by the average inventory in that period.
The
inventory turnover ratio is calculated by dividing the
cost of goods sold for a period by the average
inventory for that period. Average
inventory is used instead of ending
inventory because many companies' merchandise fluctuates greatly throughout the year. thus we have;
cost of goods sold = opening stock + puchases - closing stock
5600+ 9700 = 15300 - 4400 = 10900 (to get the average inventory, add the opening and closing stock, then divide it by 2. thus we have);
opening stock + closing stock / 2
5600 + 4400=10000 / 2 = 5000
rate of turn over = 10900/5000 = 2.18 times