Question

In a business, if the cash return process is 50 days, the credit turnover rate is 8 times, the commercial debt turnover rate is 10 times, what is the stock turnover rate? (365 days a year)

Answer 1

The cash return process is 50 days.

The formula for same is

Cash return days= Commercial debt turnover (T/O) days+Stock turnover days-credit turnover days

Now we need to find the commercial debt and credit turnover days

Commercial debt turnover days= 365/Commercial debt turnover rate = 365/10

Hence, the commercial debt turnover days would be 36.5 days

Similarly, commercial debt turnover days= 365/commercial debt turnover rate = 365/8

So, the commercial debt turnover days will come at 45.6 days

Now we will put these values in the formula

So, 50=36.5+stock T/O days-45.6

Stock T/O days= 50+45.6-36.5

So the Stock T/O days is 59.1 days

Now, the stock turnover days formula is 365/stock turnover rate

So we will use this formula and put the values and find the stock T/O rate

59.1=365/Stock T/O rate

Stock T/O rate= 365/59.1

Hence, the stock T/O rate= 6.2 times