The ratio which measures the relationship between the cost of goods sold and the amount of average inventory is the stock turnover ratio.

The stock turnover ratio is the relationship between the inventory and the cost of goods sold and is calculated as

Stock Turnover Ratio = Cost of Goods Sold/Average Stock

• The inventory or stock turnover ratio is also called the stock velocity ratio.
• Stock turnover ratio is also known as inventory ratio or inventory turnover ratio or stock turn ratio or merchandise turnover ratio or stock velocity ratio or simply velocity of stock.
• This ratio measures the number of times the stock turns, flows, or rotates in an accounting period compared to the sales affected during that period.
• It indicates the frequency of inventory replacement, i.e. the number of times the inventory has been sold and replaced during a given period of time.