The Stock Turnover Ratio, or Inventory Turnover Ratio, is a metric used to measure the effectiveness and efficiency of the stock management of the firm. It indicates a great deal in regards to the conversion of inventory into cash in a particular financial year. The ratio also provides investors and analysts a more detailed picture portraying the effective utilization of the working capital, and in return the cost saving requirements of the firm.
Importance to Financial Market Scenarios
In the emerging markets, this ratio has shown positive outcomes that result in the growth of an economy. The sign of good stock turnover ratio is that the companies in respective economies can keep it in the bank, and thus earn large amounts of interest as well. The geopolitical status of the company is dependent upon it as the newer technologies can be bought with the help of converted cash. This will help in purchasing the environment-friendly technologies for the company. The measurement of socioeconomic status of the country is done by seeing the speed at which stocks are converted into cash. This makes the monetary market stable and shareholders will turn out to invest in the companies.
Countries with High Stock Turnover Ratios
Various countries showed considerable performance in their stock turnover ratios, and exceeded norms for market capitalization values in the process as well. Some of the countries leading the world in stock turnover ratios are listed below.
- China - The country’s stock turnover ratio to the domestic share in the year 2015 was 480.3%. The country has more than two thousand companies that have made considerable progress due to cross-border capital flow and great marketing policies.
- Turkey - The Turnover Ratio to the domestic shares in 2015 was 185.2% and market capitalization also showed 60% growth from the last years.
- United States - The Turnover Ratio of Domestic Shares was 165.1% in the country as the companies traded more than 30 million USD of stock.
- South Korea - The Turnover Ratio is 149.8% of the Domestic Shares that reflects the trading power of the country and how fast the goods are converted into cash.
- Japan- It’s Stock Turnover was 113.8% of the Domestic Shares in 2015 as the total value of stocks traded was more than 42 million USD.
- Saudi Arabia - The Turnover Ratio to Domestic Shares is 103.8% as there are increased numbers of companies there as compared to yesteryear.
- Brazil - The Turnover Ratio measured to Domestic Shares in 2015 was 85.6% as the stock traded is more than 9 million USD.
- Thailand - The Stock Turnover Ratio was 77.8% to the Domestic Shares in 2015 as the stock was rapidly converted into cash.
Positive and Negative Aspects of High Stock Turnover Ratios
The positive impact of having a high turnover ratio is that there is a quick conversion of the stocks into cash and many shareholders will invest in your company. A lower turnover ratio positively influences the company as you get time to apply newer methods to increase your sales. The negative aspect of having high turnover ratio is that the company is piling up the stocks just to meet immediate demands of consumers and high profit margin is not maintained. The lower turnover ratio negatively affects as the selling of goods is done at slow pace.