1 / 6

Ratios

Ratios. By: Nick Borja. Financial Efficiency Ratios. Assess how efficiently the assets/resources of a business are being used by management Stock turnover ratio Debtor days ratio. Stock Turnover Ratio.

mabyn
Download Presentation

Ratios

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Ratios By: Nick Borja

  2. Financial Efficiency Ratios • Assess how efficiently the assets/resources of a business are being used by management • Stock turnover ratio • Debtor days ratio

  3. Stock Turnover Ratio • Records the number of times the stock of a business is bought and resold in a period of time • Least amount of capital used in holding stocks the better • Stock turnover ratio = cost of goods sold / value of stock (average) - Uses average stock holding (value of inventories at the start/end of the year • Stock Turnover ratio (days) = Value of stocks / (cost of sales/365 ) - Measures the average number of days money is tied up in stocks

  4. Points to note: • Number is not a percentage, but the number of times stock turns over in the time period • “normal” results for a business depends on the industry in which it operates • A bigger number = more efficient managers in selling stock rapidly • Just-in-time-leads to a high inventory turnover • Very efficient stock management will give a high inventory turnover ratio

  5. Debtor Days Ratio • Measures how long it takes a business to recover payment from customers who bought goods on credit • A shorter time period means better control over working capital

  6. Points to note • No “right” or “wrong” result -A business selling mainly for cash will have a very low ratio • Value of ratio could be reduced by giving shorter credit terms -30 days instead of 60 days for example

More Related