Which measure indicates the effectiveness of inventory management?

Stock turnover is a crucial measure that indicates the effectiveness of inventory management. It reflects how many times a company's inventory is sold and replaced over a specific period, typically a year. A higher stock turnover ratio suggests that inventory is selling quickly, which can imply efficient operations and that products are in demand. This efficiency often results in lower holding costs and minimizes the risks of obsolescence.

In contrast, a lower turnover ratio could indicate overstocking issues or poor sales, which can lead to increased costs and reduced profitability. Thus, analyzing stock turnover helps businesses understand their inventory management practices and make informed decisions to enhance operational efficiency.

The other measures listed—debt ratio, net profit margin, and cash flow cover—focus on different aspects of financial performance, such as capital structure, profitability, and liquidity, respectively. They do not directly assess how well a company manages its inventory. This distinction highlights why stock turnover is the most relevant measure for evaluating inventory effectiveness.