Turnover ratios

It is a type of financial ratio used to measure the efficiency of business in generating profit by utilizing assets

The larger the turnover ratio, the better as it shows that the company is optimally utilizing its assets as resources to earn revenue

Turnover ratios are calculated by dividing the revenues from average asset balance

It is also termed as efficiency ratio because it shows the company’s efficiency in conversion of assets into sales which in turn reflects the ROI

Inventory Turnover ratio measures how efficiently the stocks are being converted into finished goods to generate sales

It is calculated as –
Inventory Turnover Ratio = (Cost of Goods Sold)/(Average Inventory)

Debtors Turnover Ratio signifies the efficiency of business in converting its debtors or credit sales into cash

It is calculated as –
Debtors Turnover Ratio = (Net Credit Sales or Revenue)/(Average Trade Receivables)

Fixed assets turnover ratio measures how efficiently a company uses its fixed assets to generate revenue

Fixed Assets Turnover Ratio = (Revenue from sales)/(Average Fixed Assets)

Total assets turnover ratio takes into account both fixed as well as current asset to measure the overall efficiency in generation of revenue with assets utilization

It is calculated as –
Total Assets Turnover Ratio = (Revenue from sales)/(Average Total Assets)

Working capital ratio measures the company’s efficiency in using its working capital to generate revenue for the business

It also indicates the relation between liquidity and profitability of the business

It is calculated as –
Working Capital Turnover Ratio = (Revenue from sales)/(Average Working Capital)

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1. T URNOVER R ATIOS RATIO - ANALYSIS DevTech Finance

2. I NTRODUCTION Turnover ratios measures the company’s efficiency in employing its assets to generate revenue The larger the turnover ratio, the better as it shows that the company is optimally utilizing its assets as resources to earn revenue Turnover ratios are calculated by dividing the revenues from average asset balance It is also termed as efficiency ratio because it shows the company’s efficiency in conversion of assets into sales which in turn reflects the ROI DevTech Finance

3. 1 . Inventory Turnover Ratio 2. Debtors Turnover Ratio 3. Fixed Assets Turnover Ratio 4. Total Assets Turnover Ratio 5. Working Capital Turnover Ratio DevTech Finance

4. Inventory Turnover Ratio Types of Turnover Ratios Inventory Turnover ratio measures how efficiently the stocks are being converted into finished goods to generate sales It is calculated as – Inventory Turnover Ratio = Example- COGS = 80000 , Opening Inventory = 10000, Closing Inventory = 15,000 Avg. Inventory = ( Opn + Cls ) / 2 = (10,000+15,000)/2 = 12,500 ITR =   DevTech Finance

5. Debtors’ Turnover Ratio Types of Turnover Ratios It signifies the efficiency of business in converting its debtors or credit sales into cash It is calculated as – Debtors Turnover Ratio = Example- Net Credit Sales = 10,000 Opening balance of trade receivables = 1000 Closing balance of trade receivables = 500 DTR = = 13.33 Higher the ratio, the better is company in managing its credit sales   DevTech Finance

6. Fixed Assets Turnover Ratio Types of Turnover Ratios Fixed assets turnover ratio measures how efficiently a company uses its fixed assets to generate revenue Fixed assets involves huge capital invested in it which makes it crucial to be optimally utilized for longer time It can be calculated as – Fixed Assets Turnover Ratio = Example – Revenue = 100,000 Opening bal. of Fixed assets = 50,000 Closing bal. of Fixed assets = 45,000 FATR = = 2.10   DevTech Finance

7. Total Asset Turnover Ratio Types of Turnover Ratios Total assets turnover ratio takes into account both fixed as well as current asset to measure the overall efficiency in generation of revenue with assets utilization It is calculated as – Total Assets Turnover Ratio = Example - Revenue = 100000 Opening bal. of Total Assets = 60000 Closing bal. of Total Assets = 50000 TATR = = 1.81   DevTech Finance

8. Working Capital Turnover Ratio Types of Turnover Ratios Working capital ratio measures the company’s efficiency in using its working capital to generate revenue for the business It also indicates the relation between liquidity and profitability of the business It is calculated as – Working Capital Turnover Ratio = Example – Revenue from Sales = 100000 Opening bal. of Working Capital = 50000 Closing bal. of Working Capital = 40000 WCTR = = 2.22   DevTech Finance

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