efficiency ratios Flashcards
(11 cards)
what is the non-current asset turn over ratio formula ? (NCA)
sales/non current assets
what does the non current asset ratio measure ?
how effectively the firm is using its
long-term asset base to generate sales
what does it mean if the assets aren’t producing sales ?
it is a drain on the resources
what is the average recievables collection period formula ?
trade receivables/ credit sales x 365 days
what does the average recievables collection period formula measure ?
the average time taken to collect money from recievables
what is the inventory holding period formula ?
inventory/ cost of sales x 365 days
what’s the normal recievables collection period ?
45 to 75 days
what’s the average payables payment period formula ?
trade payables / credit purchases x 365 days
what should you use instead of credit purchases if it is not in the income statement ?
cost of goods sold
what is important to remember about average payables payment period ?
its free finance so businesses will try to extend it for as long as possible, but this could affect the goodwill of the supplier
