Which statement describes inventory turnover?

Which statement describes inventory turnover?

• A. It measures how many times inventory is turned into sales in a year
• B. It measures the speed of accounts payable collection
• C. It measures how many products a store carries
• D. It measures the price volatility of inventory

Answer: (A)

Inventory turnover is an activity measure that shows how many times a company sells and replenishes its inventory during a period, usually a year. It is typically calculated as Cost of Goods Sold divided by Average Inventory. This tells you how efficiently inventory is being managed—the higher the turnover, the faster inventory moves and the quicker capital is freed up, which can reduce carrying costs and obsolescence risk. The other ideas describe different concepts: turning accounts payable relates to paying suppliers and cash flow, not how quickly inventory is sold; the number of products carried refers to breadth of assortment, not turnover; and price volatility concerns changes in inventory prices, not the rate at which inventory is sold.

Inventory turnover is an activity measure that shows how many times a company sells and replenishes its inventory during a period, usually a year. It is typically calculated as Cost of Goods Sold divided by Average Inventory. This tells you how efficiently inventory is being managed—the higher the turnover, the faster inventory moves and the quicker capital is freed up, which can reduce carrying costs and obsolescence risk. The other ideas describe different concepts: turning accounts payable relates to paying suppliers and cash flow, not how quickly inventory is sold; the number of products carried refers to breadth of assortment, not turnover; and price volatility concerns changes in inventory prices, not the rate at which inventory is sold.