Retailing: Stockturn Rate

Retailers need merchandise to make sales. In fact, a retailer$$s inventory is its biggest asset. Not

stocking enough merchandise can result in lost sales, but carrying too much inventory increases

costs and lowers margins. Both circumstances reduce profits. One measure of a reseller$$s

inventory management effectiveness is its stockturn rate $($also called inventory turnover rate for

manufacturers$).$ The key to success in retailing is realizing a large volume of sales on as little

inventory as possible while maintaining enough stock to meet customer demands.

Cost of goods sold

Stockturn rate $=$

Average inventory at cost

$1.$ Try to determine the stockturn rate of a retailer carrying an average inventory at cost of

$$350,000,$ with a cost of goods sold of $$800,000.$

$2.$ If this company$$s stockturn rate was $3\mathrm{.}5$ last year, is the stockturn rate calculated above better

or worse? Explain.