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Average Stocks Period Concept
Average Stocks Period is an activity
indicator that seeks to measure the efficiency level with which the
company is managing its stock inventories. The bigger the average stocks
period, lower is the stocks management efficiency.
Average stocks period is calculated by the
division of the average amount of stocks by the total sales at a certain
period of time. Given that the stock’s value is usually expressed to the
cost prices, a more correct way to calculate the average stocks term is
using the cost of merchandise sold and the materials consumed instead of
the sales value. The indicator can then be converted in days, weeks or
months, being enough for that to multiply the result obtained by 365, 52
or 12, accordingly (considering naturally that the considered period was
one year).
An alternative to the average stocks
period to measure the company’s efficiency in the management of its
stocks inventories the stocks rotation ratio that can be interpreted as
the number of times that stocks are converted in sales during a certain
period of time.
Translated from Portuguese
by Susana Saraiva, Portuguese-English and English-Portuguese translation
specialist. Contact: spams@sapo.pt.
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