Which one of the following will indicate that the firm is experiencing stockouts and lost sales?

Inventory Turnover Ratio

The correct answer is option 3- Inventory Turnover Ratio.

Inventory Turnover Ratio will indicate that the firm is experiencing stockouts and lost sales.

Inventory Turnover Ratio : It determines the number of times inventory is converted into revenue from operations during the accounting period under consideration. It expresses the relationship between the cost of revenue from operations and average inventory. The formula for its calculation is as follows:
Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory
 *** It studies the frequency of conversion of inventory of finished goods into revenue from operations. It is also a measure of liquidity. It determines how many times inventory is purchased or replaced during a year. Low turnover of inventory may be due to bad buying, obsolete inventory, etc., and is a danger signal. High turnover is good but it must be carefully interpreted as it may be due to buying in small lots or selling quickly at low margin to realise cash. Thus, it throws light on utilisation of inventory of goods.