What does inventory turnover indicate?

Inventory turnover is a key metric that measures how frequently inventory is sold and replaced over a specific period. A high inventory turnover rate indicates that a business is efficiently selling its products and that the inventory is moving quickly, which can be a sign of strong sales or effective inventory management. Conversely, a low turnover rate may suggest that products are not selling well, potentially leading to overstock and increased holding costs.

Understanding inventory turnover helps businesses assess their sales performance and make informed decisions about purchasing, production, and inventory management. A company with a high turnover rate often has a more agile supply chain and is better positioned to respond to market demand. Therefore, the choice that defines inventory turnover accurately highlights its role in understanding how quickly products are being sold and the efficiency of inventory management.