Turnover ratios are a group of indicators of the financial and economic activity of an enterprise that characterize its business activity, both in the short term and in the long term. They allow you to evaluate the efficiency of using the firm's resources in relation to the amount of revenue received.
Instructions
Step 1
Most often, when analyzing the activities of an enterprise, the asset turnover ratio is used, which is calculated as the ratio of the volume of proceeds received in the course of the company's work for a certain period (usually 1 year) to the value of assets. This indicator allows you to assess how much revenue was generated by each unit of the company's assets.
Step 2
The asset turnover ratio is also calculated separately for fixed assets (capital productivity) and for circulating assets. A low level of fixed assets turnover ratio is an indicator of an insignificant level of sales or an excessively high value of capital investments. The turnover ratio of working capital indicates the rate of turnover of the means of production participating in one economic cycle.
Step 3
The inventory turnover ratio is defined as the ratio of the value of the cost of production to the average annual value of the inventory. The higher this coefficient, the more efficient the production of goods by the enterprise and the less its need for working capital.
Step 4
The turnover ratio as the ratio of the firm's revenue and the amount of receivables. It shows how efficiently the company collects funds for the supplied products from buyers. A decrease in this indicator may indicate an increase in insolvent customers and the appearance of overdue receivables.
Step 5
Accounts payable turnover ratio is calculated in a similar way. He points to the timeliness of the calculation of the firm with suppliers. A decrease in this coefficient indicates that the company has problems with settlements with creditors. However, sometimes a decrease in this indicator may indicate more favorable terms with suppliers, for example, the possibility of deferred payments.
