Question

What is Stock Turnover Ratio? What are the implications of high and low stock turnover ratios? Explain with examples.

22 Sep 2022
Answer :
Word Count : 871

Stock Turnover Ratio, also known as inventory turnover ratio, is a financial ratio that measures a company's efficiency in managing its inventory. It indicates how quickly a company is selling its inventory and replacing it with new inventory. The stock turnover ratio is calculated by dividing the cost of goods sold by the average inventory value for a given period, usually a year.

A high stock turnover ratio means that a company is selling its inventory quickly and efficiently. This indicates that the company is able to meet the demands of its customers, generate sales, and maintain a healthy level of inventory. On the other hand, a low stock turnover ratio suggests that the company is not selling its inventory as quickly, which can result in a buildup of excess inventory, which can tie up capital and decrease profitability.

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