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Stock Turn, also known as Inventory Turnover, is a measure of how many times a retailer's inventory is sold and replaced over a certain period, typically a year.
Stock Turn, also known as Inventory Turnover, is a measure of how many times a retailer's inventory is sold and replaced over a certain period, typically a year. It's a critical efficiency ratio that helps retailers understand how well they are managing their inventory.
To calculate Stock Turn, you use the following formula:
Stock Turn = Cost of Goods Sold (COGS) / Average Inventory
Where:
- Cost of Goods Sold (COGS) is the total cost of all inventory items sold during the period.
- Average Inventory is the average value of inventory over the period. It can be calculated by adding the beginning and ending inventory for the period and dividing by two.
Stock Turn is important for retailers because it provides insights into sales performance, inventory management, and purchasing efficiency. A higher turnover rate indicates that inventory is selling quickly, which is generally positive as it suggests strong demand and efficient inventory management. Conversely, a lower turnover rate may indicate overstocking or weaker sales, which can tie up capital in unsold goods and increase storage costs. Understanding Stock Turn helps retailers make informed decisions about purchasing, pricing, and marketing to optimize inventory levels and improve profitability.