![]() Thus,Ĭreditors or Payables Turnover Ratio = Annual net Credit Purchases/Average Creditors Creditors or Payables Turnover Ratio: It indicates the efficiency with which a firm manages its creditors or accounts payable. Where, Average daily credit sales = Credit Sales/360 daysģ. = 12 months or 52 weeks or 360 days/Debtors Turnover Ratio Where, Average Debtors = Opening Debtors + Closing Debtors/2ĭebtors or Receivables Velocity: It calculates the average collection period directly.ĭebtors or Receivables Velocity = Average Debtors/Average Daily credit sales Hence,ĭebtors or Receivables Turnover Ratio = Credit Sales/Average Debtors This ratio reflects the collection and credit policies of an entity. It realizes the number of such sales in cash on a later date. When a firm sells goods on credit it creates debtors. It indicates the efficiency with which a firm manages its debtors or accounts receivables. (ii) Raw-material Turnover Ratio = Raw-material consumed/Average Raw-material Stock 2. Where Average Inventory = Opening Stock + Closing Stock/2 (i) Inventory Turnover Ratio = Sales or Cost of Goods sold/Average Inventory A high ratio is good as it indicates more liquidity and vice versa. It is also an indicator of how fast the stock is sold or used. Thus, it is also called Stock Turnover Ratio. ![]() In other words, it indicates the efficiency with which it manages its stock. It studies the relationship between the cost of goods sold during the year and average inventory held during the year by a firm. However, we usually segregate the Working Capital Turnover into various ratios, namely: 1. ![]() Working Capital Turnover Ratio = Sales or Cost of Goods sold/Working Capital It measures the efficiency with which a firm is using its working capital. Therefore,Ĭurrent Assets Turnover Ratio = Sales or Cost of Goods sold/Current Assets It assesses the efficiency with which the entity uses its current assets. Net Current Assets = Current Assets – Current Liabilities. Net Assets or Capital employed = Net Fixed Assets + Net Current Assets Thus,Ĭapital Turnover Ratio = Sales or Cost of Goods sold/Net Assets A higher ratio indicates better utilization of long-term funds of owners and the lenders. It measures the entity’s ability to generate sales or cost of goods sold per rupee of long-term investment. Capital Turnover Ratio or Net Assets Turnover Ratio: Thus,įixed Asset Turnover Ratio = Sales or Cost of goods sold/Fixed Assets 3. A higher ratio shows the efficient utilization of fixed assets to generate sales. It indicates the efficiency with which a business utilizes its fixed assets. Total Asset Turnover Ratio = Sales or Cost of goods sold/Total Assets 2. It indicates the efficiency with which a business utilizes its total assets.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |