EFFICIENCY RATIOS

Question 1

EFFICIENCY RATIOS

Inventory Turnover =

Answer 1

Inventory Turnover = Cost of Goods Sold / Average Inventory
Good if: Higher.

A higher turnover (e.g., above 6) indicates efficient inventory management, but excessively high turnover may suggest stock shortages.

Question 2

EFFICIENCY RATIOS

RECEIVABLES TURNOVER =

Answer 2

ReceivablesTurnover= NetCreditSales / AverageAccountsReceivable

Good if: Higher.
A higher ratio (e.g., above 8) reflects prompt collection of receivables, indicating strong credit policies.

Question 3

Efficiency Ratios

ASSET TURNOVER =

Answer 3

Asset Turnover = Revenue / Total Assets

Good if: Higher.
A strong ratio (e.g., above 1) suggests efficient use of assets. This varies across industries (e.g., retail tends to have higher turnover than utilities).

Question 4

Efficiency Ratios

What are the 3 Efficiency Ratios?

Answer 4

The 3 Efficiency Ratios are:
* Inventory Turnover
* Receivables Turnover
* Asset Turnover