Productivity Ratios Flashcards
what doe productivity ratios show
measures the company’s ability to generate sales form its assets
- excessive investment in assets with little or no increase in sales reduces the rate of return on both assets (ROA) and equity (ROE)
what are the productivity ratios
- receivable turnover ratio, 2. average collection period (ACP) 3. inventory turnover ratio, 4. average days sales in inventory (ADSI) 5. Fixed asset turnover
how do you calculate receivable turnover ratio
revenue / AR
how do you calculate average collection period
AR / AVg daily credit sales
= 365/ receivable turnover
how do you calculate inventory turnover ratio
COGS/ inventory or
revenue / inventory - use when COGS is not available
how do you calculate average days sales in inventory (ADSI)
inventory / avg. daily sales
= 365/inventory turnover
how do you calculate fixed asset turnover
sales / net fixed assets
what does receivable turnover ratio show
measures the sales generated by every dollar of receivable
what does average collection period show
estimates the number of days it takes for a company to collect on its A/R
What does inventory turnover ratio show
measures the number of times ending inventory was “turned over” or sold during the year
- involves both stock and flow values
- managers often try to improve this ratio when they are close to year end (through inventory reduction strategies, ie cash and carry sales, clearance)
what does average days sales in inventory (ADSI) show
estimates the number of days of sales tied up in inventory, base on ending inventory values
what does fixed asset turnover show
estimates the number of sales produced by each dollar of net fixed assets
