Ratio Analysis
Valuations
Charting Technique
- Also termed as Effeciency Ratios
- Asset management ratios are also called Turnover ratios\efficiency ratios\Activity Ratios
- These ratios measures the relationship between Various Assets to Sales
- It denotes in terms of TIMES
- It indicates the number of times the inventory is rotated during the particular period
- Inventory turnover ratio measures the velocity of conversion of stock into sales.
- (Average Inventory/Sales) x 365 for days
- (Average Inventory/Sales) x 52 for weeks
- (Average Inventory/Sales) x 12 for months
- High inventory turnover denotes efficient management of inventory., i.e more frequently the stocks are sold, and the lesser amount of money is required to finance the inventory.
- Low inventory turnover ratio denotes inefficient management of inventory
- A low inventory turnover implies over-investment in inventories, dull movement in goods
- Sales can be either CASH\CREDIT. This ratio applicable for credit sales
- Debtors Turnover Ratio denotes the speed at which a company collects its debts.
- It establishes relationship between Credit sales & Debtors.
- High Turnover Ratio and shorter collection period is indicative prompt payment by Debtor
- Higher Ratio denots debts are collected quickly
- (or) high ratio indicates the shorter collection period which implies prompt payment by debtors.
- Low Turnover Ratio and Longer collection period indicates delayed payments of Debtors
- It signifies the credit period assigned by creditors to the firm to pay
- It denotes the relationship between credit purchases and average creditors.
- Accounts payable include both sundry creditors and bills payable.
- Denotes payments are made to suppliers by the company
- Average payment period ratio: Denotes the number of days by the firm to pay its creditors
- A high creditors turnover ratio or a lower credit period ratio signifies that the creditors are being paid promptly
- which enhances the credit worthiness of the company
Turnover Ratios
Inventory/Stock Turnover Ratios - - Times
Results:
Debtors Turnover Ratio - - Times
Creditors Turnover Ratio - - Times
(i)Creditors Turnover Ratio (ii)Average Payment Period
