Ratios
Asset Turnover
The amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales in dollars by assets in dollars.
Asset turnover measures the firm's efficiency at using its assets in generating sales or revenue; the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover; those with high profit margins have low asset turnover.
Receivables Turnover
An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. Receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.
Formula:
Some companies' reports will only show sales - this can affect the ratio depending on the size of cash sales
By maintaining accounts receivable, firms are indirectly extending interest-free loans to their clients. A high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient.
A low ratio implies the company should re-assess its credit policies in order to ensure the timely collection of imparted credit not earning interest for the firm.
Inventory Turnover
A ratio that shows how many times the inventory of a firm is sold and replaced over a specific period.
Although the first calculation is more frequently used, COGS may be substituted because sales are recorded at market value while inventories are usually recorded at cost. Also, average inventory may be used instead of the ending inventory level to minimize seasonal factors.
This ratio should be compared against industry averages. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying....
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