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A short concept of Stock Turnover Ratio in Accountancy:--

K
Kousiki Chakraborty
25/05/2018 0 0

Inventory turnover is a ratio showing how many times a company's inventory is sold and replaced over a period of time.The formula is given below:--

Stock Turnover=[Cost of sales / Average stock Held]

If a company has a high ratio (anywhere above 1) then they are capable of paying their short-term obligations. The higher the ratio, the more capable the company. On the other hand, if the company's current ratio is below 1, this suggests that the company is not able to pay off their short-term liabilities with cash.

Inventory Turnover Ratio is the ratio of Cost of Goods Sold / Average Inventory during the same time period. The higher the Inventory Turnover Ratio, the more likely it is that a business is carrying too much inventory. Overstocking means that cash is being tied up in inventory assets for a prolonged period.

 

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