Category Archives for "Efficiency Ratio"

Days Cash on Hand

This is a complete guide on how to calculate Days Cash on Hand Ratio with thorough analysis, interpretation, and example. You will learn how to use its formula to evaluate a business efficiency.

Definition - What is Days Cash on Hand?

The days cash on hand represents the number of days a company can continue to pay its operating expenses with the current cash it has available.

Essentially it is the number of days a company can stay in business if it makes no sales and doesn’t collect any money from customers.

This is important to know especially if the company is at a early stage of its lifetime e.g. a start up when they are not making any cash sales or even due to seasonal cycles where there may be a slump in sales made.

Knowing how much money you have on hand allows you to adjust your expenditure if necessary and, if your days cash available figure starts to get too low, drastically cut back spending.

Typically, a company would look to achieve a days cash on hand figure of around 45 as this would provide enough time to look at adjusting expenditure and planning ways to improve sales and collect money from customers.

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Accounts Payable Turnover Ratio

This is an advanced guide on how to calculate Accounts Payable Turnover (A/P) ratio with detailed interpretation, analysis, and example. You will learn how to use its formula to evaluate a company's efficiency.

Definition - What is Accounts Payable Turnover Ratio?

When you’re considering buying stock in a particular company, it can be helpful to know how efficient that company is at meeting its supplier debt obligations.

The accounts payable turnover ratio, which is also known as the creditors turnover ratio, provides you with just such an efficiency measurement.

This financial ratio allows you to compare a firm’s credit purchases against its average accounts payable (AP) amount, in order to determine how frequently it pays its suppliers.

So what does accounts payable turnover mean?​​​

If you discover that a business has a payable turnover ratio of 6, for example, it means the company you’re evaluating pays off its average supplier balance owing 6 times a year, or about every 60 days.

This information can be particularly useful when you’re analyzing ratio results over a period of time, because it lets you gauge any change in an organization’s payment habits.

A slowing trend in supplier payments often serves as a warning signal that a firm’s financial health may be declining.

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Sales to Administrative Expenses Ratio

This is a complete guide on how to calculate Sales to Administrative Expenses Ratio with thorough analysis, interpretation, and example. You will learn how to use its formula to evaluate a firm's operating performance.

Definition - What is Sales to Administrative Expenses Ratio?

The sales to administrative expenses ratio is a measure that provides really important context for an amount of sales that a company is reporting.

The ratio will essentially tell you how much the company is spending in order to maintain that level of sales volume.

Using the formula, you are figuring out exactly how much the company spends in order to get each sale.

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Accounts Receivable Turnover Ratio

This is a complete guide on how to calculate Accounts Receivable Turnover (A/R) ratio with detailed example, interpretation, and analysis. You will learn how to use its formula to evaluate a firm's efficiency.

Definition - What is Accounts Receivable Turnover?

An efficiency ratio measures how well a company uses its assets to generate income.

As one measure of this efficiency, the accounts receivable turnover ratio, which is often known as debtors turnover ratio, allows you to calculate how often a business collects its outstanding customer payments on an annual basis.​

This is important information to acquire when you’re analyzing a potential investment because a company’s accounts receivable (AR) do not become usable cash until they’ve been collected from clients.

If a business is not very efficient at converting its outstanding credit sales into cash on a regular basis, it may appear asset-rich, but a large portion of its assets won’t be very liquid.

Efficiency and liquidity both play integral roles in determining whether a firm will have the money to pay its bills on time and the means to consistently support its regular business operations, without additional funding.

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