May 2021 formula Flashcards
stock turnover
= cost of sales / ((opening stock + closing stock)/2)
what does stock/inventory turnover measure?
calculates how many times you go through your stock in a year
how is stock turnover interpreted?
generally the higher the figure the better. a lower figure would show they business is more efficient this would be good for a manufacturer
receivables days
= (receivables / revenues) x 365
what does receivables days measure?
the time it takes for a business to collect debts owed
how would receivables days be interpreted?
a lower number is better as the business is being paid quicker, the firm will then find it easier to meet its short term cash needs
payables days
= (payables / cost of sales ) x 365
what does payables days measure?
the time it takes for a business to pay its creditors
how can payables days be interpreted?
A larger number benefits the firm as they will find it easier to meet its short term cash needs however this might put relationships with suppliers at risk
