What is the role of the inventory turnover ratio in evaluating store performance?

• A. It measures how often inventory is sold and replenished; higher turnover indicates efficiency.
• B. It measures the total value of stock at year end.
• C. It measures staff productivity in warehousing.
• D. It measures the accuracy of financial statements.

Answer: (B)

Inventory turnover ratio shows how quickly a store sells and replenishes its stock in a given period. It’s computed by dividing cost of goods sold by average inventory, and a higher value means stock is moving faster, reflecting efficient purchasing, strong sales, and good liquidity. This metric helps assess how well inventory is managed and can highlight issues like overstocking or stockouts. It does not measure the total value of stock at year end—that’s just the ending inventory on the balance sheet—and it doesn’t directly assess staff productivity or the accuracy of financial statements.