Efficiency Ratios Flashcards
(8 cards)
Asset turnover
Revenue (turnover) ➗ non-current assets
0.344 = 34p
Stock turnover
Cost of stock (or sales) ➗ average stock
To turn into days your device 365 by the number you get. Eg 365➗ 2.5 = 146 days
Debtor days
(Trade debtor (receivables) ➗ revenue(sales)) x365
Measures in days
Creditor payments
(Trade payables ➗ purchases (cost of sales)) x365
Measures in days
What does asset turnover tell us
Measures how efficiently a business is able to use its non current assets to generate sales revenue. The higher the better. If higher it suggests the assets are being used more efficiently to turn over sales revenue
What’s does stock turnover tell us
Measures how quickly the stock is turned over (sold)
What does debtor days tell us
Measures how quickly debts are turned into cash. Basically how quickly the money owing to the business is payed. Shows an average amount, in days it’s takes for the debtors of the business take to pay
What does creditor payment tell us
Measures how quickly a business pays its suppliers. It shows the number of days which a business takes to pay money it owes to its supplier. It’s useful because it helps the suppliers and business understand when they will pay their debts.
