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.