Which statement best describes what higher inventory turnover indicates?

Which statement best describes what higher inventory turnover indicates?

• A. It indicates faster sales and more efficient use of inventory
• B. It indicates higher safety stock requirements
• C. It indicates more frequent stockouts
• D. It indicates longer cycles between orders

Answer: (C)

Higher inventory turnover shows that goods are selling and being replaced more quickly. It’s calculated as cost of goods sold divided by average inventory. A higher ratio means you’re turning over inventory faster relative to what you hold, signaling faster sales and more efficient use of stock. This typically means you’re keeping less capital tied up in inventory and reducing carrying costs and the risk of obsolescence. While very rapid turnover can raise concerns about meeting demand if replenishment isn’t aligned, the main takeaway is that higher turnover reflects better efficiency and faster sales.

Higher inventory turnover shows that goods are selling and being replaced more quickly. It’s calculated as cost of goods sold divided by average inventory. A higher ratio means you’re turning over inventory faster relative to what you hold, signaling faster sales and more efficient use of stock. This typically means you’re keeping less capital tied up in inventory and reducing carrying costs and the risk of obsolescence. While very rapid turnover can raise concerns about meeting demand if replenishment isn’t aligned, the main takeaway is that higher turnover reflects better efficiency and faster sales.