What does the Inventory Turnover Ratio indicate?

The Inventory Turnover Ratio is a key financial metric that indicates how often a company sells and replaces its inventory over a specific period, typically measured annually. A high ratio suggests strong sales and effective management of inventory, indicating that products are being sold efficiently without excessive overstock. Conversely, a low turnover rate may point to overstocking or insufficient sales, which can tie up capital and lead to increased holding costs.

In the context of other options, the total value of inventory held refers to a different aspect of inventory management rather than the frequency of sales. The speed at which invoices are paid is related to accounts receivable and cash flow rather than inventory turnover. Lastly, the percentage of items out of stock pertains to inventory availability and stock management rather than the efficiency of inventory turnover. Therefore, the focus of the Inventory Turnover Ratio is specifically on the frequency with which inventory is sold and replaced, making the first option the correct choice.