What is Stock-to-Sales Ratio in Retail? Explained

Stock-to-Sales Ratio in the retail industry is a key performance indicator that measures the relationship between the amount of inventory a retailer has on hand and the actual sales achieved. This ratio is calculated by dividing the average inventory by the net sales over a specific period. A higher stock-to-sales ratio indicates that a retailer is efficiently managing its inventory, as it suggests that the inventory is turning over quickly in relation to sales. Conversely, a lower ratio may suggest excess inventory, potentially leading to higher carrying costs and the risk of obsolescence. Retailers use this metric to optimize inventory levels, enhance cash flow, and improve overall operational efficiency.