Activity ratios that fall under the set of pattern ratios and performance measurement are a set of financial ratios intended to measure the effectiveness of the project in:
Use the materials available to him
And the need to achieve an appropriate and continuous balance between sales and accounts of different assets, whether current assets, including inventory and customer receivables or fixed assets (a component of long-term assets) or total assets.
These percentages are:
1- Inventory turnover rate
2 - Average retention period of stock
3. Customer turnover rate
4. Average collection period
5. The turnover of creditors
6. Fixed asset turnover
7. Total turnover of assets
Inventory turnover = Cost of goods sold / Average stock (first stock + other stock) / 2
This decrease is considered an indication that the project keeps excess stock of goods stagnant and not required and should be disposed of - because this non-required increase in the stock number inevitably leads to an increase in the current assets figure, which is, of course, the general indicator of the liquidity of the project.
* The decline in this ratio is also indicative of the possibility of undesirable effects that may be realized and exposed to the inventory and this will also affect the current assets of the project on the one hand and on the other hand the total assets.
When calculating inventory turnover, the analyst should address two problems that may be encountered:
- - The financial analyst is required to use the number of the cost of the goods sold instead of the sales number when calculating this percentage as the sales number is calculated on the basis of the selling price, while the inventory is determined on the basis of the cost price.
- - Since the sales number is a compound number for the whole year - while the inventory is a calculation of the cost at one point in time, it is usually preferred when calculating this ratio using the average stock by adding the stock of the first period to the stock of the last time and dividing the output to (2).
Rate Inventory turnover is = the cost of goods sold / average stock (first stock + other stock / 2)
Current Assets Turnover = Net Sales / Assets
However, it is usually preferable to measure the turnover of each component of the assets traded separately as the following percentages, for example:
- 1- Inventory turnover rate
- 2. Average storage period
- 3. Customer turnover rate
- 4. Average collection period
- 5. The turnover of creditors
Total working capital is the total of the assets held by the project at a given date. The difference between current assets and short-term liabilities is called net working capital, which gives the economic unit's creditors the safety ratio of the current liabilities. Profit margin by the number of times it went.
The working capital turnover can be calculated as follows:
1- Working capital turnover rate
Working capital turnover = net sales / average working capital
Working capital turnover (day) = 360 / Working capital turnover
A good investment guide when working capital days are reduced because the margin will increase.
2- Turnover rate of debtors
Turnover rate = net sales / average balance of receivables
It is used to judge the efficiency of credit management in the economic unit on debt collection. The higher the rate, the better the performance of the management in collecting its debt and the success of its credit policy.
3. Inventory turnover rate
Inventory Turnover = Sales Cost / Average Inventory Balance
This indicator is used to determine the efficiency of sales management in marketing the unit's economic products during the year, and the increase in this indicator through the number of times it is used shows the efficiency of management in achieving profits.
Inventory turnover can be calculated as follows:
Inventory Turnover (in Daily) = 360 / Inventory Turnover
4. The turnover of creditors
Debt turnover = (net purchases) / (creditors + payment notes)
This indicator is used to judge the efficiency of project management to meet its current liabilities. The daily turnover of creditors can be calculated as follows:
Daily turnover of creditors (360/360)
5. Fixed asset turnover
Fixed asset turnover (Fixed Assets Turnover Ratio)
The ratio measures total sales on average Fixed assets. It is used as an indicator of the company's efficiency in generating sales from Fixed assets Especially in industrial companies that require the construction of factories or buildings.
6. Total Assets Turnover
This ratio shows the activity of the assets and their ability to generate sales through the use of the total assets of the company and the higher the turnover rates indicated the good investment in assets.
Total Assets Turnover = Net Sales متوسط Average Total Assets
Asset turnover rates are divided into three categories:
- Current Assets Turnover = Net Sales / Current Assets
- Fixed asset turnover = net sales / fixed assets
- Total asset turnover = net sales / total assets
(Increase in value of fixed assets ± change in working capital) / (net income + non-cash expenses).
What is financial analysis?
Financial analysis refers to assessing the viability, stability, and profitability of a business, sub-business or Project
How to calculate inventory turnover?
Author Ryan Farman says managing inventory levels is an important issue for companies as they can show whether sales efforts are effective or whether costs are controlled. Inventory turnover is also an important measure of how well the company sales from its inventory.
What is inventory turnover and how is it interpreted?
Inventory turnover is the number of times a company sells and replaces its inventory of goods during a period. Inventory turnover provides insight into how a company manages costs and how effective its sales are.
The better the inventory turnover, the higher the stock turnover usually means that the company sells goods very quickly and demand for its products exists.
The low inventory turnover, on the other hand, probably indicates weak sales and declining demand for the company's products.
Inventory turnover provides insight into whether the company is properly managing its assets. The company may have overestimated the demand for its products and purchased a very large amount of goods as evidenced by the low turnover rate. Conversely, if inventory turnover is too high, the company may not buy enough inventory and may lose sales opportunities.
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