What does inventory turnover measure?

Inventory turnover specifically measures the frequency with which inventory is sold and replaced over a specified period. This metric is essential for assessing how efficiently a company manages its inventory relative to sales performance. A higher inventory turnover ratio indicates that a company is selling goods quickly and thus is effective in converting inventory into revenue.

This measurement is crucial for understanding the health of a business, as it reflects on the company's demand forecasting, purchasing efficiency, and overall operational effectiveness. It can also provide insights into how well the company is responding to market demands and what the product movement looks like over time.

In contrast, while the other options highlight various aspects of inventory management, they do not capture the essence of inventory turnover. For example, the ability of a company to stock its inventory refers more to supply chain efficiency rather than sales efficiency. The total amount of inventory owned does not indicate how effectively that inventory is being utilized to generate sales, and the costs associated with maintaining inventory are significant but separate from the concept of turnover. Thus, focusing on how frequently inventory is sold and replaced provides a clearer picture of a company's operational performance.