What ratio measures the liquidity of inventory by determining how often average inventory is sold during a period?

The Inventory Turnover Ratio is the correct answer as it specifically measures how often a company's inventory is sold and replaced over a period. This ratio is crucial for assessing a business’s efficiency in managing inventory. A higher inventory turnover indicates that inventory is being sold quickly, which reflects effective sales strategies and demand for products. Conversely, a lower ratio may signal overstocking or weak sales performance.

In terms of liquidity, a higher turnover rate suggests that the company can quickly convert its inventory into cash, which is a critical aspect of maintaining sufficient liquidity to meet short-term obligations. This metric provides insight into how well a company is utilizing its inventory to generate revenue and manage its cash flow.

Other ratios mentioned, such as Gross Profit Margin, Net Profit Margin, and Pretax Profit Margin, measure profitability but do not provide specific information about inventory management or liquidity. They focus on the relationship between sales, costs, and profits rather than how efficiently inventory is handled. Thus, while those margins are important for understanding a company's overall financial health, they do not address the liquidity of inventory in the same way the Inventory Turnover Ratio does.