efficiency ratios Flashcards
what is the collection period ratio and what does it show?
collection period = 360 Days / Receivable Turnover
Also known as “receivable turnover in days”, “collection period”. It measures the average number of days it takes a company to collect a receivable. The shorter the DSO, the better. Take note that some use 365 days instead of 360.
what is the inventory turnover in days ratio and what does it show?
Days Inventory Outstanding = average inventory / cost of sales X 365
Also known as “inventory turnover in days”. It represents the number of days inventory sits in the warehouse. In other words, it measures the number of days from purchase of inventory to the sale of the same.
what is the days payable outstanding ratio and what does it show?
Days Payable Outstanding = average payables / cost of sales
Also known as “accounts payable turnover in days”, “payment period”. It measures the average number of days spent before paying obligations to suppliers. A low ratio is favored because it is better to delay payments as much as possible so that the money can be used for more productive purposes.
what is the Total Asset Turnover ratio and what does it show?
Total Asset Turnover = Net Sales / Average Total Assets
Measures overall efficiency of a company in generating sales using its assets. The formula is similar to ROA, except that net sales is used instead of net income.
non current asset turnover ratio
non current asset turnover ratio = sales / n/c assets
every £1 in c/a how many £ sales do we make
capital employed turnover ratio
non current asset turnover ratio = sales / capital employed
every £1 in capital employed how many £ sales do we make
what is debtor collection period and the formula?
debtor collection period = debtors / sales X 365
how fast we retrieve money from debtors
