A high inventory turnover ratio indicates that:

• A. inventory is obsolete and not selling
• B. the company has a high amount of inventory on hand
• C. the company is overstocking inventory
• D. inventory is being sold and replaced quickly

Answer: (D)

Verified step by step guidance

1. Understand the concept of inventory turnover ratio: It measures how efficiently a company sells and replaces its inventory over a specific period. A higher ratio indicates faster movement of inventory.
2. Analyze the implications of a high inventory turnover ratio: A high ratio typically suggests that inventory is being sold and replenished quickly, which is a sign of effective inventory management and strong sales performance.
3. Eliminate incorrect options: Review the provided choices and rule out options that contradict the meaning of a high inventory turnover ratio. For example, 'inventory is obsolete and not selling' and 'the company is overstocking inventory' are inconsistent with the concept of high turnover.
4. Focus on the correct interpretation: A high inventory turnover ratio aligns with the idea that inventory is being sold and replaced quickly, indicating efficient operations and demand for the company's products.
5. Conclude with the correct answer: Based on the analysis, the correct answer is 'inventory is being sold and replaced quickly,' as it accurately reflects the implications of a high inventory turnover ratio.