Stock turnover is defined as a measure of the number of times stocks are sold or used in a time period like a year. It is more specific than asset turnover. It is used to measure how good a company is making use of the portion of its working capital which has been invested in stock. This article will tell you how to calculate stock turnover in simple steps.
The main component of asset turnover for companies that have a little amount in fixed assets but have large amounts of stock is stock turnover. Generally manufacturing companies use stock turnover rather than asset turnover.
Calculation of stock turnover is very easy. By doing some simple calculation you can find out the stock turn over of a company easily.
These are some formulas given for the calculation of stock turnover.
- Stock turnover = Total cost of good sold / average stock
- Average stocks = Beginning stocks + ending stocks / 2
- Average days to sell the stocks = 365 days / stocks turnover ratio
Steps to calculate the stock turnover
- Find out the company’s sales. A company provides its sales number on the income statement of its financial statements. One can also use cost of good sold, as it is also given on the company’s income statements.
- Find out the company’s stocks. The company’s stocks are given on the balance sheet of the company. One can also use average stock if one is using cost of goods sold.
- Divide either sales by stock or cost of good sold by average stock to find out stock turnover ratio.
Use in business
- Increasing stock decreases holding cost. The company pays fewer amounts on utilities, rent, insurance, theft and other costs of keeping a stock to be sold.
- Decreasing holding cost increases net income and profitability till the revenue remains constant from the selling of items.
- Some products turn more while allowing the replacement. These products quickly increase responsiveness to changes in costumer requirements. It is concerned in fashion industries.
- If you are comparing between firms, you should take note of the industry, or the comparison will be of no meaning or fuzzy. For example, if you are comparing a mega mart and a car showroom, then it is not appropriate. In a mega mart, basically fast moving consumer goods are sold and obviously the turnover will be higher there. But as a car is a slow moving item, the turnover will be automatically low. In such case only intra industry comparison will be applicable.
This is how you can calculate stock turnover. It is a very simple and easy process. I hope this article has been helpful to you in learning how to calculate stock turnover.
Related Tags: used car stock turn calculation, how to calculate stock turnover, calculating name turnover, rate of stock turnover stock increase, stock trun calculation, stock turn easy, stock turnover calculation, stock turnover car sales days
Related Content: