Ratio calculation

[Deleted User]

Hey guys!

If a business generates revenue by selling goods and providing services, when we're calculating the days inventory ratio (average inventory/cost of sales*365) for the business, what cost of sales figure do we use? Is it just the cost of sales associated with selling the goods or is both that and the cost of sales associated with providing the service?

Thank you in advance.

[Sach1_K]

Hi
If your talking about stock turnover
Isn't the expression avg stock x365 /COST OF GOODS SOLD
You should only have one cogs amount for each year the one you would see on the income statement -it includes freight in etc.
And the stock amount is the average of the starting amount of stock and the end amount of stock.
And you should get a number indicating the number of days.
Hopefully this is what your talking about and if it is hope it helps.

[abcdqdxD]

cost of goods sold includes cost of sales + any other costs incurred in getting the stock into a condition and location ready for sale (i.e customs duty, freight in, etc.)

[Deleted User]

So what if a business provides services as part of its day-to-day operations (eg. haircuts) as well as selling hair products? Does the stock turnover only reflect the rate of hair products being sold or does it also reflect the rate of haircuts being sold?

[abcdqdxD]

service firms isn't part of the study design