Stock Turnover
Also known as: Inventory Turnover
Stock turnover is a ratio that measures how many times inventory is sold and replaced over a period, indicating how efficiently stock is used.
Stock turnover, also called inventory turnover, is calculated by dividing the cost of goods sold by average inventory value over a period. A high turnover means stock moves quickly and little capital sits idle; a low turnover suggests overstocking, slow-moving items or weak demand.
The ideal turnover varies by industry — perishable goods should turn over far faster than industrial spares. Tracking turnover helps procurement and inventory teams decide order frequency and quantity, spot dead stock, and free up working capital tied up in slow items.
Example
If a business records RM1.2 million in cost of goods sold over a year and holds RM200,000 of average inventory, its stock turnover is 6 — meaning it cycles through its stock roughly six times a year, or about every two months.
Frequently asked questions
- What is stock turnover?
- Stock turnover is a ratio showing how many times inventory is sold and replaced over a period. It is calculated as cost of goods sold divided by average inventory value.
- Is a high stock turnover good?
- Generally yes — it means stock sells quickly and less cash is tied up in inventory. But turnover that is too high can signal stock levels so lean they risk frequent stock-outs.
Related terms
Inventory Management
Inventory management is the practice of ordering, storing, tracking and controlling stock so that the right items are available at the right time without tying up excess capital.
Read definitionReorder Point
The reorder point is the stock level at which a new order should be placed to replenish an item before it runs out.
Read definitionWorking Capital
Working capital is the money a business has available for day-to-day operations, calculated as current assets minus current liabilities.
Read definitionExplore related across the knowledge graph
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