Stock turnover ratio is also known as inventory turnover ratio. Stock turnover ratio measures how many times inventory is sold and then replaced in a given period. The period depends on the user, but is normally either monthly, quarterly or yearly. Stock turnover ratio is important because it will give management and investors an idea of how quickly a firm moves its inventory.
- Skill level:
- Moderately Easy
Determine a company's sales. Company's disclose their sales numbers on the income statement of their financial statements. An analyst can also use cost of goods sold, which is also on the company's income statement.
Determine the company's inventory. The company must disclose their inventory on their balance sheet. An analyst can also use average inventory if using cost of goods sold.
Divide either sales by inventory or cost of goods sold by average inventory to determine stock turnover ratio.
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