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Category Archives for "Efficiency Ratio"

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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Inventory to Sales Ratio

This is a thorough guide on how to calculate Inventory to Sales Ratio with detailed analysis, interpretation, and example. You will learn how to use its formula to evaluate an organization's efficiency.

Definition - What is Inventory to Sales Ratio?

The inventory to sales ratio measures how efficient a company is in managing its inventory.

This ratio establishes a relationship between a company’s sales and its inventory.

Inventory management is always a difficult task. You always want to have sufficient inventory to cater to the demand in the market.

At the same time, if the inventory starts to build up, the costs to store and manage it will eat into the firm’s profits.

To be efficiently operational, a business has to maintain its inventory in such a way that it never has either too much or too little of it in stock.

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Fixed Asset Turnover Ratio

This is an advanced guide on how to calculate Fixed Asset Turnover Ratio with detailed analysis, example, and interpretation. You will learn how to use its formula to assess a company's operating efficiency.

Definition - What is Fixed Asset Turnover Ratio?

The fixed asset turnover ratio measures how efficiently a company can generate sales with its fixed asset investments (typically property, plant, and equipment).

Generally, a greater fixed-asset turnover ratio is more desireable as it suggests the company is much more efficient in turning its investment in fixed assets into revenue.

Investors and creditors typically favor this ratio as it shows how well a company is utilizing its assets to generate sales, and can therefore assist with measuring the return on investment that can be achieved.

This ratio is also important in industries such as manufacturing where a company can typically spend a lot of money on the purchase of equipment.

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Sales to Operating Income Ratio

This is an ultimate guide on how to calculate Sales to Operating Income Ratio with in-depth interpretation, analysis, and example. You will learn how to use its formula to assess a firm's efficiency position.

Definition - What is Sales to Operating Income Ratio?

The sales to operating income ratio, also known as the net sales to operating profit ratio or net sales to EBIT ratio, allows you to examine the relationship between a company’s net sales and its operating income in more detail.

This ratio works by measuring what proportion of a firm's sales revenue is left over after paying for variable production costs such as raw materials, wages, etc.

The sales revenue to operating income ratio, in a way, tells you how efficient the business model of a company is in generating profits.

In general, it gives you an idea of how much money the business is making (before taxes and interest) on each dollar of sales.

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