Efficiency ratios

Question 1

Inventory turnover

Answer 1

a ratio showing how many times a company’s inventory is sold and replaced over a period of time.

[((Opening Inventory + Inventory)/2)/Closing Inventory]*12

Question 2

Receivables turnover ratio

Answer 2

An accounting measure used to quantify a firm’s effectiveness in extending credit and in collecting debts on that credit. The receivables turnover ratio is an activity ratio measuring how efficiently a firm uses its assets.

Question 3

Accounts payable turnover ratio

Answer 3

The accounts payable turnover ratio is a short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. Accounts payable turnover ratio is calculated by taking the total purchases made from suppliers, or cost of sales, and dividing it by the average accounts payable amount during the same period.

Question 4

Fixed-asset turnover ratio

Answer 4

measures how able a company is to generate net sales from fixed-asset investments, namely property, plant and equipment (PP&E), net of depreciation. In a general sense, a higher fixed-asset turnover ratio indicates that a company has more effectively utilized investment in fixed assets to generate revenue.

Question 5

Payables settlement

Answer 5

=(Trade Payables/Purchases of Inventory)*12