Measure how well a company can utilize their assets to generate income. Not only that, these ratios also indicate the time it takes for companies to collect cash from its customers or the amount of time it takes to convert inventory into cash.
Measure how many times a business can turn its accounts receivable into cash during a period. Furthermore, this is an imperative ratio as it indicates how efficiently a company is at collecting its credit sales from customers. Moreover, a higher accounts receivable turnover ratio is more favourable as it shows that the company is collecting their receivables more frequently throughout the year.
Accounts Receivable Turnover Ratio:
Measures a company’s ability to generate sales from its assets by comparing net sales with average total assets. Moreover, a higher assets turnover ratio is more favourable as it indicates that the company can effectively use its assets to generate sales.
Asset Turnover Ratio:
Measures how efficiently a company can manage its inventory and turn it or sell it during a period. Furthermore, it is imperative that the company should have a high inventory turnover ratio as it indicates that the company does not overspend by buying too much inventory. Not only that, it shows that the company can effectively sell the inventory it buys.
Inventory Turnover Ratio:
Measures the number of days it will take a company to sell all of its inventory. Furthermore, this is an important ratio as it measures value, liquidity and cash flows; as it shows investors and creditors how valuable a company’s inventory is as newer inventory is worth more than older ones. Moreover, it is more favourable that inventory is sold in less days to minimize costs and make sure inventory moves as fast as possible to generate cash flow. Otherwise, it can start costing the company extra money if it sits for longer.
Day's Sales In Inventory Ratio:
