Business Glossary
What Is Stock Turnover Ratio?
Stock turnover ratio measures how many times a business sells and replaces its entire stock over a year. A higher ratio means stock is selling quickly and cash is recycling efficiently. A lower ratio means stock is sitting unsold — tying up cash and increasing obsolescence risk.
The Formula
Stock Turnover Ratio = Annual COGS ÷ Average Stock Value
Worked Example — UK SME
A UK retailer: annual COGS £380,000, average stock value £52,000. Stock turnover = 7.3 times per year — the business sells and restocks its entire inventory approximately every 50 days.
UK Benchmark
📊 Benchmarks by sector: FMCG/food 20–40x, fashion retail 4–8x, general retail 4–8x, distribution 6–12x, manufacturing 4–8x, luxury goods 1–3x. Below benchmark indicates excess stock. Above benchmark risks stockouts.
Common Questions
How does stock turnover relate to stock cover?
They are inverses. Stock cover days = 365 ÷ Stock turnover ratio. A turnover of 7.3x per year = 50 days of stock cover. Use whichever metric is more intuitive for your context.
How do I improve stock turnover?
Identify and reduce slow-moving stock. Run promotions to clear excess inventory. Review reorder quantities. Improve demand forecasting to order closer to actual need.
Is very high stock turnover always good?
Not necessarily. Extremely high turnover can mean frequent stockouts. The goal is optimal turnover for your business model — fast enough to keep cash cycling, slow enough to maintain service levels.
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