ACTIVITY RATIO : To measure efficiency of a company perform its daily main operations.
Examples of Activity Ratio
1) INVENTORY TURNOVER
INVENTORY TURNOVER = COST OF GOODS SOLD / AVERAGE INVENTORY
To measure how fast inventory being cleared compared to cost of goods sold.
2) DAYS OF INVENTORY ON HAND
DAYS OF INVENTORY ON HAND = 365 / INVENTORY TURNOVER
To measure how many days need to clear inventory.
3) RECEIVABLES TURNOVER
RECEIVABLES TURNOVER = REVENUE / AVERAGE RECEIVABLES
To measure how fast to receive money from customers compared to revenue.
4) DAYS OF SALES OUTSTANDING
DAYS OF SALES OUTSTANDING = 365 / RECEIVABLES TURNOVER
To measure how many days need to receive cash from customers.
5) PAYABLE TURNOVER
PAYABLE TURNOVER = PURCHASES / AVERAGE TRADE PAYABLE
To measure how fast company pays money to suppliers.
6) NUMBER OF DAYS OF PAYABLE
NUMBER OF DAYS OF PAYABLE = 365 / PAYABLE TURNOVER
To measure how many days company pays money to supplier.
7) WORKING CAPITAL TURNOVER
WORKING CAPITAL TURNOVER = REVENUE / AVERAGE WORKING CAPITAL
To measure how efficient company use working capital to generate revenue.
8) TOTAL ASSETS TURNOVER
TOTAL ASSETS TURNOVER = REVENUE / AVERAGE TOTAL ASSETS
To measure how efficient company use total assets to generate revenue.
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