Efficiency Ratios measure how well a company uses its assets and resources. Theses metrics generally examine how many times a business can accomplish a task within a certain period.
Accounts Receivable Turnover Ratio measures the number of times over a period of time a company collects its average accounts receivable. This can also tell us the average number of days it takes t collect credit sales from customers, otherwise known as accounts receivable.
- Accounts Receivable Turnover Ratio = Net Credit Sales / Average Accounts Receivable
- Sales on Credit – Sales Returns – Sales Allowances
- Accounts Receivable Ending Balance + Accounts Receivable Beginning Balance / 2
Accounts Receivable Days is the number of days on average it takes a company to collect on credit sales from its customers.
- Accounts Receivable Days = Number of Days in Period / Accounts Receivable Turnover Ratio
Asset Turnover Ratio measures how efficient a company uses its assets to generate sales. This metric looks at how many dollars in sales is generated per dollar of total assets the company owns.
- Asset Turnover Ratio = Net Sales / Average Total Assets
Inventory Turnover Ratio measures how many times a business sells and replaced its stock of goods in a given period. This determines how efficient a business is at clearing its inventory.
- Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
Inventory Turnover Days is the average number of days it takes to sell a stock of inventory.
- Inventory Turnover Days = Number of Days in Period / Inventory Turnover Ratio