What does stock turnover indicate in a retail context?

Stock turnover is a critical metric in retail that indicates how effectively a business is managing its inventory. Specifically, it measures the number of times stock is sold and replaced over a specific period. A high stock turnover rate suggests that inventory is selling quickly, which implies efficient inventory management. This efficiency is vital for minimizing holding costs, reducing waste, and responding promptly to customer demand.

Using stock turnover as an indicator allows retailers to assess whether they are efficiently utilizing their inventory, ensuring that they are not overstocked or understocked. This directly impacts cash flow, as quicker inventory turnover leads to faster sales, which generates revenue and potentially enhances profitability.