Mock Ratios: Asset Management Flashcards
How do you calculate Inventory Turnover in Days?
DSI = (COGS/ Inventory Turnover) then 365 / IT
How do you calculate Accounts Receivable Turnover in Days? (DSO)
DSO = Sales /Accounts Receivable then 365/ART
How do you calculate Accounts Payable Turnover in days? (DPO)
DPO = COGS/Accounts Payable then 365/APT
How do you calculate the Cash Conversion Cycle?
Cash Cycle =
Operating Cycle - DPO
Or
DSI + DSO - DPO
How do you calculate Fixed Asset Turnover?
Sales / Fixed Assets (PPE-Accumulated Depreciation)
How do you calculate Total Asset Turnover
Revenue / Total Assets
What does Inventory Turnover tell us?
Inventory turnover is a measure of efficiency. It tells us how many times on average it takes for the company to sell its inventory.
What does Accounts Receivable (DSO) Turnover tell us?
It tells us how many days on average it takes a company to collect money from customers (receivables).
What does Accounts Payable (DPO) Turnover tell us?
DPO tells us how long on average it’s taking for the company to pay its suppliers.
What does the cash conversion cycle tell us?
The cash cycle tells us about the company’s short term liquidity needs a.k.a Working Capital.
It’s also called ‘Days Other Financing Required’
The first part of the cash cycle (operating cycle) tells us how long a firm must go before it gets the cash back from the investment in inventory.
What does the Fixed Asset Turnover tell us?
Fixed Asset turnover tells us how well a company uses its fixed assets (PPE) to generate revenues.
For each dollar invested in PPE, the result of this ratio tells us how much revenue those Fixed Assets provided. Therefore, the higher the better.
What does Total Asset Turnover tell us?
Total Asset Turnover tells us how well as company uses its assets to generate revenue. (Therefore, the higher the better)
