Final answer:
The inventory turnover ratio indicates how quickly inventory is sold and the number of times the average inventory balance is sold during a period. A higher ratio reflects efficient inventory management and faster sales, whereas a lower ratio indicates slower sales. The ratio does not directly suggest high inventory levels.
Step-by-step explanation:
The inventory turnover ratio is a key measure used in business to assess the efficiency of inventory management. This ratio indicates how quickly inventory is sold and is a vital indicator of the inventory management and sales performance of a company.
The correct statements regarding the inventory turnover ratio are:
- It indicates how quickly inventory is sold.
- It shows the number of times the average inventory balance is sold during a reporting period.
- A high ratio suggests efficient inventory management, not necessarily a high inventory level.
Contrary to one of the statements, the lower the ratio, the slower a company sells its inventory, because it indicates that inventory is not being turned over as quickly. A higher inventory turnover ratio typically indicates that a company is selling its inventory rapidly, which is generally positive, as it suggests good inventory management and can lead to lower holding costs.