finance exam- expense ratios Flashcards
what is the expense ratio
expenses/sales revenue
what is the expense ratio of 2018 and comment on it
11.6%
for every $1 in sales, 11.6c was absorbed by operating expenses
the lower the expense ratio…
the more efficient the business
what is the expense ratio of 2019 and comment on it
for every $1 in sales, 13.2c is absorbed by operating expenses
a high expense ratio may indicate that..
there is poor control over expenses
what are the mian strats for expense ratio to improve
-carefully monitoring cost centres
-being aware that indiscriminate cost cutting can damage the competitive situation by damaging quality & reputation- w extreme consequences
what is the acc receivable turnover ratio?
the ratio that measures the effectiveness of a business credit policy & collection procedures. so, how effectively it collects the debts owed to it.
how to calculate accounts receivable turnower
- Sales / Accounts Receivable = times
- 365 / turnover times = turnover days
what is the acc receivable 2018 and comment
the amount of times the accounts receivable turned over in one year= 11.5 times
the number of days on avg that accts receivable were outstanding was every 32 days
quicker turnovers means…
more efficient collection procedures
what is the acc receivable 2019 and comment
the amount of times the accounts receivable turned over in one year= 11.3 times
the number of days on avg that accts receivable were outstanding was every 32 days
the ratio that is optimum for accs recievableis
30-60 days (4-6 times a year)
if it were longer periods than 30-60 days..
then it would reflect the poor credit control of the business, poor credit policy and liquidity issues
how should a business maintain their accs receivable
-carefully monitoring their accs and who theyr give credit
-vigilant w credit collection procedures
-provide discounts for early paymnet n penalities for late
-use factoring if cash flow is significantly influenced
