What does Inventory Turnover Ratio measure?
AHow rapidly inventory is sold and replaced during a given accounting period
BThe proportion of total assets tied up in inventory
CThe net margin earned on inventory sales
DThe percentage of damaged inventory written off
Explanation
Core Concept: Inventory Turnover = Cost of Goods Sold / Average Inventory. It indicates how many times inventory is converted to sales throughout the year. Context/Distractors: Days Inventory Outstanding (DIO) = 365 / Inventory Turnover. Exam Tip/Key Fact: Higher inventory turnover generally signifies strong sales performance and effective stock control.
Exam Relevance
- Topic: Financial Statement Analysis
- Subtopic: Activity / Efficiency Ratios
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