Efficiency Ratios
Cash Turnover
Measures how effective a company is utilizing its cash.
• Formula
Net Sales/Cash
Sales to Working Capital (Net Working Capital Turnover)
Indicates the turnover in working capital per year. A low ratio indicates inefficiency, while a high level implies that the company's working capital is working too hard.
• Formula
Net Sales/Average Working Capital
Total Asset Turnover
Measures the activity of the assets and the ability of the business to generate sales through the use of the assets.
• Formula
Net Sales/Average Total Assets
Fixed Asset Turnover
Measures the capacity utilization and the quality of fixed assets.
• Formula
Net Sales/Net Fixed Assets
Days' Sales in Receivables
Indicates the average time in days, that receivables are outstanding (DSO). It helps determine if a change in receivables is due to a change in sales, or to another factor such as a change in selling terms. An analyst might compare the days' sales in receivables with the company's credit terms as an indication of how efficiently the company manages its receivables.
• Formula
Gross Receivables/Annual Net Sales / 365
Accounts Receivable Turnover
Indicates the liquidity of the company's receivables.
• Formula
Net Sales/Average Gross Receivables
Accounts Receivable Turnover in Days
Indicates the liquidity of the company's receivables in days.
• Formula
Average Gross Receivables/(Annual Net Sales / 365)
Days' Sales in Inventory
Indicates the length of time that it will take to use up the inventory through sales.
• Formula
Ending Inventory/(Cost of Goods Sold / 365)
Inventory Turnover
Indicates the liquidity of the inventory.
• Formula
Cost of Goods Sold
Average Inventory
Inventory Turnover in Days
indicates the liquidity of the inventory in days.
• Formula
Average Inventory/Cost of Goods Sold / 365
Operating Cycle
Indicates the time between the acquisition of inventory and the realization of cash from sales of inventory. For most companies the operating cycle is less than one year, but in some industries it is longer.
• Formula
Accounts Receivable Turnover in Days+ Inventory Turnover in Day
Days' Payables Outstanding
Indicates how the firm handles obligations of its suppliers.
• Formula
Ending Accounts Payable/(Purchases / 365)
Payables Turnover
Indicates the liquidity of the firm's payables.
• Formula
Purchases/Average Accounts Payable
Payables Turnover in Days
Indicates the liquidity of the firm's payables in days.
• Formula
Average Accounts Payable/ (Purchases / 365)
Cash Turnover
Measures how effective a company is utilizing its cash.
• Formula
Net Sales/Cash
Sales to Working Capital (Net Working Capital Turnover)
Indicates the turnover in working capital per year. A low ratio indicates inefficiency, while a high level implies that the company's working capital is working too hard.
• Formula
Net Sales/Average Working Capital
Total Asset Turnover
Measures the activity of the assets and the ability of the business to generate sales through the use of the assets.
• Formula
Net Sales/Average Total Assets
Fixed Asset Turnover
Measures the capacity utilization and the quality of fixed assets.
• Formula
Net Sales/Net Fixed Assets
Days' Sales in Receivables
Indicates the average time in days, that receivables are outstanding (DSO). It helps determine if a change in receivables is due to a change in sales, or to another factor such as a change in selling terms. An analyst might compare the days' sales in receivables with the company's credit terms as an indication of how efficiently the company manages its receivables.
• Formula
Gross Receivables/Annual Net Sales / 365
Accounts Receivable Turnover
Indicates the liquidity of the company's receivables.
• Formula
Net Sales/Average Gross Receivables
Accounts Receivable Turnover in Days
Indicates the liquidity of the company's receivables in days.
• Formula
Average Gross Receivables/(Annual Net Sales / 365)
Days' Sales in Inventory
Indicates the length of time that it will take to use up the inventory through sales.
• Formula
Ending Inventory/(Cost of Goods Sold / 365)
Inventory Turnover
Indicates the liquidity of the inventory.
• Formula
Cost of Goods Sold
Average Inventory
Inventory Turnover in Days
indicates the liquidity of the inventory in days.
• Formula
Average Inventory/Cost of Goods Sold / 365
Operating Cycle
Indicates the time between the acquisition of inventory and the realization of cash from sales of inventory. For most companies the operating cycle is less than one year, but in some industries it is longer.
• Formula
Accounts Receivable Turnover in Days+ Inventory Turnover in Day
Days' Payables Outstanding
Indicates how the firm handles obligations of its suppliers.
• Formula
Ending Accounts Payable/(Purchases / 365)
Payables Turnover
Indicates the liquidity of the firm's payables.
• Formula
Purchases/Average Accounts Payable
Payables Turnover in Days
Indicates the liquidity of the firm's payables in days.
• Formula
Average Accounts Payable/ (Purchases / 365)