Using ratios to analyse companies

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8. Stockturn

Definition: Sales (or turnover) divided by year-end stocks

Stockturn shows how fast a company sells its goods. The higher the figure, the leaner the company.

Example

Yardstick:

The appropriate figure depends on the type of business, but stockturn is particularly relevant for manufacturing or retailing businesses. Retailers that are doing well and run efficiently will have a much higher multiple because they should be able to put the burden of carrying stock on their suppliers.

Another way of looking at stock is to calculate the number of days on average that a company keeps its stock. This is expressed as the year-end stock figure divided by the sales, and multiplied by 365.

Example

1. Why bother with ratios? 2. A word of warning 3. The P&L and the balance sheet 4. Grouping the ratios 5. Profit margin 6. Return on capital employed (ROCE) 7. Sales as a multiple of capital employed 8. Stockturn 9. Debt collection 10. Payment of trade creditors 11. Cash-to-cash cycle 12. Gearing 13. Interest cover 14. Current ratio 15. Quick ratio (acid test) 16. Earnings ratios 17. Dividend ratios 18. Other ratios 19. Sources of information 20. Conclusion

• Magic Numbers