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Concept
Cost of goods sold divided by ((opening stock plus closing stock) divided by 2).
Stock turnover, also known as inventory turnover, represents the number of times stock is sold and replaced within a year. A high stock turnover may indicate one or more of:
a high-volume low-mark-up business model
the business is holding very low stock levels
the business has a lot of wastage.
A low (also known as slow) stock turnover may indicate one or more of:
a low-volume high-mark-up business model
the business has too much money tied up in stock
the business holds high levels of out-of-date or unsaleable items.
Note: Stock turnover ratios are only calculated for industries in manufacturing, wholesaling, retailing and food services, as these commonly have traded stock.
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