Efficiency Ratio or Efficiency Ratio Operational Efficiency Ratio
Measures the ability of the company to
utilize its assets. Measured based on the company’s ability to generate sales from the utilization of its assets. Turnover ratios are used to measured operational efficiency ratio. Operational Efficiency Ratio
1. Asset Turnover – an indicator of the
efficiency with which the company is utilizing all of its assets. It measures the peso value of sales generated for every peso of the company’s assets. The higher the turnover rate, the more efficient the company in using its assets. Operational Efficiency Ratio
2. Fixed Asset Turnover
The ratio is similar to asset turnover, except that it is focused on fixed asset only. Fixed asset is composed of property plant and equipment It is an indicator of the efficiency of fixed assets in generating sales Operational Efficiency Ratio 3. Inventory Turnover measured based on cost of goods sold This ratio is an indicator of how fast the company can sell its inventory. Operational Efficiency Ratio 3. Inventory Turnover Formula: Inventory Turnover = Cost of Goods Sold Average Inventory Average Inventory=Inventory Beg. + Inventory End 2 Operational Efficiency Ratio 4. Days in Inventory This ratio computes the average number of days that inventories are held until sold Operational Efficiency Ratio 4. Days in Inventory Formula 1 : Days in Inventory = Average Inventory Average Daily Cost of Goods Sold Average Inventory=Inventory Beg. + Inventory End 2 Average Daily Cost of Good Sold = Cost of Goods Sold 365 Operational Efficiency Ratio 4. Days in Inventory Formula 2: Days in Inventory = 365 Inventory Turnover Operational Efficiency Ratio 5. Accounts Receivable Turnover Measures the number of times the company can convert accounts receivable into cash during the year. Formula: Accounts Receivable = Net Sales Turnover Average Accounts Receivable Operational Efficiency Ratio 5. Days in Receivable Measures the company’s collection effectiveness during the year. Formula 1: Days In Accounts = 365 Receivable Accounts Receivable Turnover Operational Efficiency Ratio 5. Days in Receivable Formula 2: Days In Accounts = Average Accounts Receivable Receivable Average Daily Sale Average Daily Sales = Sales 365 Average Accounts Receivable = AR beg + AR end 2 Operational Efficiency Ratio Ratio Formula Asset Turnover Net Sales Average Asset Fixed Asset Turnover Net Sales Average Fixed Asset Inventory Turnover Cost of Goods Sold Average Inventory Days In Inventory 365 Inventory Turnover Accounts Receivable Turnover Net sales Average Accounts Receivable Days in Accounts Receivable or 365 Average collection Period Accounts Receivable Turnover