Stocks Rotation Ratio Concept

Stocks rotation ratio or indicator is an activity ratio that seeks to measure the efficiency level with which the company is making its management of materials in stock. The higher the clients rotation ratio value, bigger the efficiency of the stocks management.

Stocks rotation ratio is calculated by the division of the total sales at a certain time by the average stocks amount in this same time period. Given that the stock’s value is usually expressed on the costs price, a more correct way to calculate the stocks rotation ratio is using the cost of sold merchandises and consumed materials instead of the sales value. This way, the stocks rotation ratio can be interpreted as the number of times that the stocks are converted in sales during a certain time period.

An alternative to stocks’ rotation ratio to measure the company’s efficiency in the management of its materials in stock is the average stocks deadline which indicates the average time that the company takes to convert its existences in sales.

 

 

Translated from Portuguese by Susana Saraiva, Portuguese-English and English-Portuguese translation specialist. Contact: spams@sapo.pt.