As a rule of thumb, a stock holding that represents 12 months worth of sales is the maximum needed. However, it’s very hard to generalise.
Some businesses are import oriented so need to commit to a certain level of stock to ensure their freight rate is not exorbitant and/or they have sufficient stock ordered from a single season pre-order. This may cause lumps in their stock holdings.
At the other end of the scale are products that are rapidly changing in terms of the market acceptance due to changes in technology. A 12-month stock holding of sales in that sector would be far too extensive. Often these stock holdings are measured in days or weeks.
The first step in determining the correct stock holding for your business is to understand your current Inventory Turnover Ratio (ITR) i.e. your stock turn.