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Stockturn

Stock turnover (stockturn) is highly valuable ratio for retailers. As the name suggests it tells you how quickly you are turning over your stock, expressed in number of times per year. So a stockturn of 12 means you are turning your stock over 12 times per year or approximately once each month. This leads to a partner ratio know as days stock on hand. Days stock on hand of 30 (which is approximately a stockturn of 12) indicates that your stock would last for 30 days at your current sales level.
Whether this is good or bad depends on the type of stock you carry. For instance you would expect to have a much higher stockturn with fruit than you would with furniture.

What stockturn should you aim for. Often the starting point is to look at what you did last year and think about what you want to do with your stock levels. Some retailers like to have high stock levels so they don't miss a sale. This might have some validity if your product has a high gross profit margin. However stock is very expensive to keep and generally that means people like their stock levels to be as low as possible. If you have high stock levels that means you have significant dollars tied up in stock, the stock also takes up storage space and the more stock you have the more likely you will have stock that is damaged or becomes obsolete. More stock also means more staff time managing it. So if you have not paid much attention to your stock levels before it is likely that you have significant opportunity to free up resources, if you manage your stock well.

We have already mentioned that you can compare your stockturn to last year (and the years before that). You could also look at what other businesses are doing. Benchmarking companies, industry associates and government organisations (for example the Australian Bureau of Statistics) will often publish this information.

Calculating your stockturn. Stockturn is calculated by dividing your Cost of Goods Sold (COGS) by your average stock. Typically average stock is calculated as the average of opening and closing stock and that is what we will use here. Mostly this works okay but in some industries there is a spike in stock at certain times of the year (for example a toy retailer is likely to carry more stock leading into Christmas). In these circumstances a more appropriate way to calculate your average is by using your closing stock for each month. We will set up a separate full year stock average page for those of you that wish to do this.

You should also see the page on GMROII because it combines Stockturn and Gross Margin.

 

Stockturn Calculator