efficiency ratios

Question 1

what do efficiency ratios show?

Answer 1

measures how effectively a company utilises its resources to generate sales, profits and cash flow

Question 2

what is the equation for inventory days? give relevant units.

Answer 2

(inventory / cost of sales) x 365
days

Question 3

what is the equation for trade receivable days? give relevant units.

Answer 3

(trade receivables / revenue) x 365
days

Question 4

what is the equation for trade payable days? give relevant units.

Answer 4

(trade payables / cost of sales) x 365
days

Question 5

what is the equation for asset turnover? give relevant units.

Answer 5

sales / total assets
times

Question 6

what is the equation for working capital cycle / cash conversion cycle?

Answer 6

inventory days + receivables days - payables days (these figures are taken from ratios already calculated)
days

Question 7

what does the working capital cycle / cash conversion cycle show?

Answer 7

measures time it takes for firm to convert current assets into cash through sales and then use cash to pay current liabilities. it provides insight into efficiency in managing working capital & cash flow.

a shorter cycle indicates better efficiency