Which efficiency ratio measures the number of times a firm sells its stock in a year and can be expressed as the average days to sell stock?

Which efficiency ratio measures the number of times a firm sells its stock in a year and can be expressed as the average days to sell stock?

• A. Receivables turnover
• B. Stock turnover
• C. Inventory growth rate
• D. Debt service ratio

Answer: (B)

Inventory turnover measures how quickly a firm sells and replaces its stock within a year. It directly answers how many times inventory is sold in that period, so it’s the best fit for the statement. If you want to express this as average days to sell stock, you convert turnover into days by calculating about 365 divided by the turnover figure, giving the inventory days. The other ratios look at different things—how fast money from customers is collected, the ability to service debt, or changes in inventory levels—so they don’t describe how often stock is sold in a year.

Inventory turnover measures how quickly a firm sells and replaces its stock within a year. It directly answers how many times inventory is sold in that period, so it’s the best fit for the statement. If you want to express this as average days to sell stock, you convert turnover into days by calculating about 365 divided by the turnover figure, giving the inventory days. The other ratios look at different things—how fast money from customers is collected, the ability to service debt, or changes in inventory levels—so they don’t describe how often stock is sold in a year.