Financial ratios Flashcards
What is capital asset turnover ratio?
Capital asset turnover ratio shows how well a company generates revenue by using its fixed assets like machinery and property.
We want to keep it steady.
Capital Asset Turnover = Net Sales/Average Net Fixed Assets
Net sales = Revenue - Sales Returns and Allowances - Discounts
Net Fixed Assets = Gross Fixed Assets - Accumulated Depreciation
Average Net Fixed Assets = (Beginning Net Fixed Assets + Ending Net Fixed Assets) / 2
Formula of capital asset turnover ratio?
Sales/PP&E (end of period)
or
Sales/PP&E (average)
What is inventory days and how would you calculate it?
Inventory days is a financial ratio that measures number of days it takes a company to convert its inventory into sales.
Inventory days = (Avg Inventory/COGS) *365
Avg Inventory = avg dollar value of inventory during a period
Give me examples of indirect costs?
- Marketing
- Sales
- Admin expenses
What are accounts receivable days?
Number of days it takes to convert accounts receivables (i.e. items sold on credit) into cash payment for its products or services.
It is best to keep it as short as possible.
Formula for calculating AR days?
AR days = AR/Sales * 365
What are accounts payable days?
Number of days it takes to make payments on expenses.
The larger this number is the better for a business.
Formula for calculating AP days?
AP days = AP/COGS * 365
What are inventory days?
Number of days it takes to sell all of the inventory.
We want it to be as small as possible.
Inventory days formula
Inventory days = Inventory/Cost of Sales *365
Monthly AR formula
AR days/Days in Period * Sales
Monthly AP formula
AP days/Days in Period * COGS
Monthly Inventory formula
Inventory days/Days in Period * COGS
Depreciation expense of a month formula
PP&E gross value at start of the month*annual depreciation rate/periods in a year
