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Plz help me- RATIO analysis

CA Kanchan Jha (Finance & Accounts Executive) (493 Points)

25 September 2010

What is meant by Stock Velocity in Ratio Analysis? How can we apply Average Collection Period for finding Debtor balance?

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9 Replies

* Krishna * (CA Student) (6149 Points)
Replied 25 September 2010

Stock velocity is also known as Stock/Inventory Turnover Ratio.

Stock Turnover Ratio = Cost of Goods Sold/Average Stock

Where Average Stock = [Opening Stock + Closing Stock]/2

Cost of Goods Sold = Opening Stock + Net Purchases + Direct Expenses – Closing Stock

khushboo (article) (86 Points)
Replied 25 September 2010

velocity general meaning stock holding period but in context of ratio it is used as stock turnover ratio yeh answer given by krishna is correct

CA. Abhishek K. Pandey (Manager (Advance)) (901 Points)
Replied 25 September 2010

Stock velocity means movement of stock, but in your context , as above said it is stock turnover ratio. To find Debtors balance from average collection period. Use this formula. Average Debtors = Net Credit Sales During the Year*Average Collection Period/365 days or 12 months, as the case may be. Regards, Abhishek K. Pandey

sourabh (student) (34 Points)
Replied 26 September 2010

Originally posted by : Abhishek K. Pandey
	Stock velocity means movement of stock, but in your context , as above said it is stock turnover ratio. To find Debtors balance from average collection period. Use this formula. Average Debtors = Net Credit Sales During the Year*Average Collection Period/365 days or 12 months, as the case may be. Regards, Abhishek K. Pandey