Stock turnover ratio shows relationship between costs of goods sold and average stock. This ratio is also known as "Inventory Ratio" or "Inventory Turnover Ratio" or "Stock Turn Ratio" or "Stock Velocity Ratio" or "Velocity of Ratio". This ratio measures the number of times of stock turns or flows or rotates in an accounting period compared to the sales affected during that period. This ratio indicated the frequency of inventory replacement. This ratio is expressed as rate. Purpose of stock turnover ratio is to calculate the speed at which the stock is being turned over into sales. Calculate the stock velocity to indicate the period takes by average stock to be sold out. Judge how efficiently the stock are managed and utilized to generate sales.
Formula:
Components:
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2)
* If opening stock is not given, the closing stock is treated as average stock.
Alternative method of stock turnover ratio:
This ratio can be calculated by using average stock at selling price at as the denominator. Under this method, average Stock at selling price is related to net sales.
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