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The turnover ratio or turnover rate is the proportion of a mutual fund's or other portfolio's holdings that have been replaced in a given year (calendar year or whatever 12-month period constitutes the fund's fiscal year).

Receivables turnover ratio: The ratio that evaluates the assets collected on average during the fiscal year is known as the receivables turnover ratio. It is used to assess the firm's asset utilization effectiveness.

It is computed by dividing yearly credit sales by average accounts receivable.

$\text{Receivableturnoverratio=}\frac{Annualcreditsales}{Averageaccountsreceivable}$

Inventory turnover ratio: The inventory turnover ratio is calculated by dividing the total number of inventories sold and replaced throughout the fiscal year by the total number of inventories sold and replaced. It is used to assess the firm's efficiency in converting inventories into sales.

It is computed by taking the cost of goods sold and dividing it by the average inventory value.

$\text{Inventoryturnoverratio=}\frac{Costofgoodssold}{Averageinventoryratio}$

The receivables turnover ratio and inventory turnover ratio are similar in that they both measure assets that do not produce value for the organization. The receivable turnover ratio is used to assess assets that do not provide value to the company. The inventory turnover ratio is used to calculate the value of an asset that is on hold.