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Answer Posted / sohan singh
STOCK TURNOVER RATIO MEANS
The ratio of a company's annual sales to its inventory; or
equivalently, the fraction of a year that an average item
remains in inventory. Low turnover is a sign of
inefficiency, since inventory usually has a rate of return
of zero. For instance, if a company was able to generate
$10 million in sales but averaged $5 million in inventory,
the inventory turnover would be 10 million / 5 million = 2.
This number indicates that there would be 2 inventory turns
per year, meaning that it would take 6 months to sell all
the inventory.
I.e. Opening stock = 70
Sale of month = 15
purchase in month = 10
closing stock = 65
Average stoock of the month = (70+65)/2 = 67.5
STR = sale of the month/average stock
= 15/67.5
= .22%
Means we have stock of 130 days in hand.
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