ACCA Performance Management (F5) Certification Practice Exam

What is measured by the inventory holding period?

1. Average time inventory is held

2. Profit from goods sold

3. Cash flow from sales

4. Total number of sales

The correct answer is: Average time inventory is held

The inventory holding period specifically measures the average time that inventory remains in stock before it is sold. This metric is crucial for businesses as it helps assess operational efficiency and inventory management. By calculating the average number of days that inventory is held, a company can identify how effectively it turns over its stock. A shorter inventory holding period is generally preferable, indicating fast sales and efficient inventory management, while a longer period may suggest sluggish sales or excess inventory. The other options relate to different aspects of a business's operations. Profit from goods sold assesses revenue generation but does not indicate how long inventory is kept before sale. Cash flow from sales focuses on the timing and amount of cash coming into the business rather than the duration of inventory holding. Total number of sales provides insight into sales volume but does not reflect the inventory management process directly. Thus, option A is the most accurate description of what is measured by the inventory holding period.