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Category Archives for "Efficiency Ratio"

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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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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Operating Leverage Ratio

This is a complete guide on how to calculate Operating Leverage Ratio with detailed example, interpretation, and analysis. You will learn how to use its formula to evaluate a firm's efficiency.

Definition - What is Operating Leverage Ratio?

The operating leverage ratio is basically the ratio of fixed costs to variable costs.

Its main purpose is to calculate where a company’s breakeven point is. However, it can also indicate the potential for increasing profit.

If a company has a high operating leverage ratio, it may mean they simply need to utilize their current assets more fully to increase profits rather than increasing spending to increase profit.

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Cash Turnover Ratio

This is an advanced guide on how to calculate Cash Turnover Ratio with in-depth interpretation, example, and analysis. You will learn how to use this ratio's formula to evaluate a firm's efficiency.

Definition - What is Cash Turnover Ratio?

The Cash Turnover Ratio measures the ability of a company to turn its cash into sales revenue.

As a general rule, a higher cash turnover is seen to be better than a lower one as it suggests that the company is being efficient with its working capital by going through its cash cycles much quicker.

However, it is wise to note that this may not necessarily be the case.

Instead, it might mean a company is burning through its cash quicker, has limited cash available and subsequently might require short-term funding in the future.

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