What is an 'inventory turnover ratio' used to measure?

The inventory turnover ratio is a key metric used to assess how effectively a business manages its inventory. This ratio indicates how many times inventory is sold and replaced within a specific period, typically a year. A higher inventory turnover ratio suggests that a company is selling its inventory quickly, which can indicate strong sales and efficient inventory management. Conversely, a lower turnover might suggest excess inventory, indicating potential issues such as overstocking or weak sales.

Understanding this metric is crucial for businesses to maintain optimal inventory levels and ensure they are meeting customer demand without overcommitting resources to excess stock. This concept helps in making informed decisions about purchasing, stock management, and sales strategies. The other options relate to different aspects of inventory or finance but do not specifically address the turnover of inventory itself.