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Category Archives for "Efficiency Ratio"

Average Inventory Period

This is a detailed guide on how to calculate Average Inventory Period with accurate interpretation, example, and analysis. You will learn how to use its formula to evaluate a firm's efficiency.

Definition - What is Average Inventory Period?

How many days on average a company holds its inventory before it turns it into sales is known as the average inventory period ratio, or days inventory outstanding (DIO) measure.

Typically the consensus of a good average inventory ratio result is the lower, the better as it suggests that the company can turn its inventory into sales and potential cash, quicker.

As well as this it means that the fresher, newer and thus more valuable stock is replacing the older inventory faster.

However, this measure is of more value when compared with previous results as well as other companies in the same industry.

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Goodwill to Assets Ratio

This is an all-in-one guide on how to calculate Goodwill to Assets Ratio with detailed analysis, interpretation, and example. You will learn how to use its formula to assess a company's efficiency.

Definition - What is Goodwill to Assets Ratio?

Goodwill is the value of the company derived from intangible assets, such as patents, copyrights and licensing agreements.

It arises during a merger or acquisition when the purchase price of the company is greater than its book value.

To reestablish the equilibrium of the balance sheet after a merger, intangible assets are written into the balance sheet.

The goodwill to assets ratio measures the percentage of a company’s total assets that is attributable to goodwill.

It is a good metric to gauge whether goodwill takes up a disproportionate amount of a company’s total assets.

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Days Inventory Outstanding

This is a detailed guide on how to calculate Days Inventory Outstanding with in-depth interpretation, example and analysis. You will learn how to use its formula to assess a company's operating efficiency.

Definition - What is Days Inventory Outstanding?

The days inventory outstanding, also referred to as the day sales of inventory (DSI) or the average inventory period, is a calculation that helps determine if the business efficiently turns its inventory into purchased products, or in other words, into cash.

In short, it measures how long it would take, in days, for a company to sell its inventory.

Holding onto too much inventory can negatively affect a company’s operating performance, and it’s even worse when it takes long time for the business to liquidate its inventory.

Evaluating how long it takes for inventory to be sold can give you an overall picture of how well the business is operating.

For managers, knowing your company’s day sales of inventory (DSI) can help you figure out what issues to address.

You can decide to optimize your procurement and storage process to make your products become more liquid and sell even faster.

For investors, this ratio is particularly useful if you use it to compare different companies in the same industry.

You can easily find out which business is doing better in its operations, and this information will be useful for making your investment decision.​

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Free Cash Flow to Sales Ratio

This is a complete guide on how to calculate Free Cash Flow to Sales Ratio with in-depth analysis, interpretation and example. You will learn how to use its formula to evaluate a business efficiency.

Definition - What is Free Cash Flow to Sales Ratio?

The free cash flow to sales ratio is used to measure the “real” amount of cash that a company has earned over a given period.

Any ratio using the actual cash a company has tends to be more reliable because it’s much harder for a company to manipulate that figure.

In this case, you get a more realistic picture of exactly how much the company’s sales are bringing in.​

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