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08.12.2020Stock turnover ratio is a relation between the stock or the inventory of a company and its cost of goods sold and calculates how many times an average stock is being converted into sales.
It should be noted that both these formulae make similar inferences. However, there can be differences stocsk numerical values, but the underlying consequences should be similar. Stock turnover is also called inventory turnovermerchandise turnover, or Turning Stocks Into Cash 12th stock turn.
These words may be used interchangeably to mean the same thing. Data is in US dollars. Inference: This ratio tells that company X turns its inventory roughly about 29 times to produce its cost of goods sold, and ultimately the sales for the company.
In the example above, we can also calculate Days in Inventory or DSI as it is known, by the following formula:. Days in Inventory mean the number of days it takes for company X to convert its inventory into sales. Walmart, the US retailer giant, is an example of the best inventory management system.
Below is the Statement of financial position and Income statement for Walmart. What is the inventory turnover for the company?
Source: WalMart Annual Report. The cost of goods sold can be found out from the income statement above. And the average inventory can be calculated by taking the year-end inventories for FY and FY Inference: Walmart turned over its inventory 8.
A high turnover ratio is desirable for Walmart because of its retail business, where high inventory turnover ratios are observed. Stock turnover ratio is a critical measure for a company and is widely used in financial analysis and financial modeling purposes; however, it has certain limitations.
The stock turnover ratio is as critical to inventory management as it is to the overall operations of a business. Due care should be taken when analyzing stock turnover. This article has been a guide to Turning stocks into cash us Turnover Ratio and its meaning.
Here we discuss how to interpret stock turnover ratio along with examples, advantages, and turning stocks into cash us. You can learn more about accounting from the following articles —. Free Investment Banking Course. Login details for this Free course will be emailed to you. This website or its third-party tools use cookies, which turning stocks into cash us necessary to its functioning tudning required to achieve the purposes illustrated in the cookie policy.
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