Stock Turnover Formula

Stock Turnover Formula

Stock Turnover formula has been given below; this formula has been explained with an example.

Stock Turnover =      Cost of Sales during the Year              .                                   Closing Inventory or Average Inventory

Stock Turnover is calculated to show how many times inventory sold during the year. It is pertinent to mention that stock turnover vary industry to industry, some industries have low stock turnover (Like Tires, Cloths), other industry has high turnover (food industry).

Stock Turnover Formula Example

Cost of Sales = 90,000

Inventory = 15,000

Calculate Stock Turnover

Solution

Stock Turnover =     Cost of Sales    

                                Inventory

= 90,000/15,000

= 6 (times sold)

Significance of Stock Turnover Calculation

Stock turnover calculation simply shows that how many times stock sold during the year. This information is a tool for controlling the performance of sales department. Stock turnover information of different periods is compared to evaluate performance of sales department. Stock turnover information is also compared with stock turnover of the industry.

High Stock Turnover

High stock turnover level is normally show good performance of the sales teams. High turnover is also preferred, because it reduces the risk of obsoletes. In some industries high stock turnover helps in designing customer specific product.

Low Stock Turnover

Low stock turnover shows the poor performance of the sales team. Furthermore, low stock turnover reflect the overstocking of the inventory which is not recommended, because stock holding involves a number of costs.

 Stock Turnover Formula Practice Question

Cost of Sales of Company = 120,000

Closing Inventory = 25,000

Calculate Stock Turnover