Tuesday, 11 April 2017

Stock Turn or Inventory Turn

For example:

Annual turnover  $10 million
Annual cost of sales (60%)  $6 million
Stock value $1.5 million
Stock turn 4

This measures the number of times that total stock is used (turned over) in the course of a year.

The higher the stock turn the more efficiently the business is being run, though adequate safety margins must of course be maintained.

It is important that the terms are completely understood and that there are no abnormal factors.

Normally the definition of stock includes all finished goods, work in progress and raw materials.

The stock value will usually be taken from the closing Balance Sheet but you need to consider if it is a typical figure.

If the business is seasonal, such as a manufacturing of fireworks, it may not be.  

A better result may be obtained if the average of several stock figures throughout the year can be used.

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