The stock turnover ratio measures the efficiency of a company’s management in handling its inventories. It is calculated by dividing the number of times inventory is sold and replaced over a specific period of time, usually annually, by the average inventory held during that same period of time. A high stock turnover ratio is seen as a sign of effective inventory management; a lower ratio indicates issues with inventory stocking or pricing, as well as increased storage costs. By closely monitoring your stock turnover ratio, business owners can ensure that their inventory levels are in line with customer demand and are not carrying too much or too little stock.