What does inventory turnover measure?

What does inventory turnover measure?

• A. The number of times inventory is sold and replaced during a period.
• B. The amount of inventory on hand at year-end.
• C. The time from order to delivery.
• D. The rate of packaging changes.

Answer: (A)

Inventory turnover measures how many times inventory is sold and replaced during a period. It reflects the speed at which stock moves through the business and is commonly calculated by dividing cost of goods sold by the average inventory for the period. A higher turnover means inventory is sold and restocked quickly, which can indicate strong sales and lower carrying costs. Conversely, a low turnover can signal overstocking or sluggish sales and higher holding costs. This is not about how much inventory is on hand at year-end (that’s a snapshot of stock), nor about the time from order to delivery (that’s lead time or order cycle time), nor about how often packaging changes occur.

Inventory turnover measures how many times inventory is sold and replaced during a period. It reflects the speed at which stock moves through the business and is commonly calculated by dividing cost of goods sold by the average inventory for the period. A higher turnover means inventory is sold and restocked quickly, which can indicate strong sales and lower carrying costs. Conversely, a low turnover can signal overstocking or sluggish sales and higher holding costs. This is not about how much inventory is on hand at year-end (that’s a snapshot of stock), nor about the time from order to delivery (that’s lead time or order cycle time), nor about how often packaging changes occur.