Determine the stockturn rate if this retailer carries an average inventory at a cost of $750,000, with a cost of goods sold of $2,000,000. If this company’s stockturn rate was 3.5 last year, is the stockturn rate you just calculated better or worse? Explain.
Retailers need merchandise to make sales. In fact, a retailer’s inventory is its biggest asset. The cost of goods sold greatly impacts a retailer’s gross profit margin. Moreover, not stocking enough merchandise can result in lost sales, whereas 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. Refer to Appendix 2 to answer the following questions.