MAC - Stock Holding Period

timgriff

Hi guys,

I understand that the 'stock days' ratio can be calculated as: Stock/COS x365 = x days.

So if i've got this right, if the average number of days stock is held for is high then it's bad as stock isn't being shifted quickly enough + additional storage/finance costs.

But in the Kaplan pocket notes it says:

"Stock holding period: this ratio indicates whether stock levels are justified in relation to sales. The higher the ratio the healthier the cash flow position".

Eh?? Is this kaplan being kaplan again??!

Rinske

I would suggest to look at the scenario. Usually a high number of stock days means it doesn't get sold quickly, but some items are expected to be slow moving. Can't think of an example at the moment.

However if you look at the current ratio a high level of stock would give a more positive view of the company. (Which would be cancelled out if you also check the quick ratio).

I'd say in general fast moving stock is better, especially for supermarkets/ retailers etc.

timgriff

Thanks that makes sense, wish the books would explain it like that! Note to self: must remember to think outside the box tomorrow