Asset Turnover Ratios

Question 1

Asset turnover ratios

Answer 1

Measure a companies efficiency in utilizing assets

Question 2

Receivables turnover

Answer 2

Credit sales/average AR
Average AR=(beg AR + ending AR)/2
Measures how quickly AR are collected

Higher turnover = more efficient collection of receivables
- reduces risk of receivables becoming uncollectible
Might not be optimal if the credit policy is too tight, could hinder sales

Question 3

Average collection period

Answer 3

Average AR /(credit sales/365)

Used to assess efficiency of collections and effectiveness of collection policies

Question 4

Inventory turnover

Answer 4

COGS/average inventory

Measures how quick inventory is sold
Higher ratio=more efficient inventory management

Question 5

Inventory period

Answer 5

Average inventory /(COGS/365)

Measures number of days inventory is held before sold