Example: Term A/Term B (Term A divided by Term B) 1000/2000 .50 This is the explanation of the role of this ratio and why it is important 3
Efficiency Ratio: Receivables Turnover Net sales/Account receivables 50000000/32120000 1.55 Looks at how fast we collect on our sales or, on average, how many times each year we clean up or totally collect our accounts receivable. A high turnover ratio is generally a good thing since it means that customers are paying their bills on time. If the turnover ratio is too high as compared to the industry the company is in, it may mean, however, that the company is too restrictive in its credit and collection policies and not extending credit to enough customers.
Grade for above 3.0 3.0 3.00 3.0 12.0 Net Sales/Net Receivables $50,000,000 / $31,120,000 1.56x This ratio indicates the liquidity of the company's receivables.
Efficiency Ratio: Inventory Turnover Cost of goods sold/Average inventory $9000000/$32000000 0.2815 Inventory turnover is a way of measuring how many times a business sells its stock of inventory in a given time period. Businesses use inventory turnover to assess competitiveness, project profits, and generally figure out how well they are doing in their industry
Grade for above 3.0 3.0 3.00 3.0 12.0 Cost of Goods Sold/Average Net Inventory $9,000,000/$32,000,000 .28x This ratio indicates the liquidity of the inventory.
Financial Leverage Ratio: Debt/Equity Ratio Total liabilities/Total assets 235900000/235900000 1(100%) The percentage of total debt financing the firm uses as compared to the percentage of the firm's total assets. It helps you see how much of your assets are financed using debt. The lower the number the better.
Grade for above 1.0 1.0 1.00 3.0 6.0 Total Debt/Total Equity $94,900,000/$141,000,000 67.3% This ratio indicates how well creditors are protected in case of the company's insolvency.
Liquidity Ratio: Current Ratio Current assets/Current liabilities...