Bank Promotion Exams

Sign In

 

E-mail Id

:
 

Password

:  
  Register   Forgot Password?  
 





Efficiency Ratios
-----------------

Efficiency ratios also called activity ratios measure how well companies utilize their assets to generate income. Efficiency ratios often look at the time it takes companies to collect cash from customer or the time it takes companies to convert inventory into cash—in other words, make sales. These ratios are used by management to help improve the company as well as outside investors and creditors looking at the operations of profitability of the company.

Efficiency ratios go hand in hand with profitability ratios. Most often when companies are efficient with their resources, they become profitable. Wal-Mart is a good example. Wal-Mart is extremely good at selling low margin products at high volumes. In other words, they are efficient at turning their assets. Even though they don't make much profit per sale, they make a ton of sales. Each little sale adds up.

Here are the most common efficiency ratios are :

Accounts Receivable Turnover Ratio

Working Capital Ratio

Asset Turnover Ratio or Total Asset Turnover Ratio

Inventory Turnover Ratio

Days' Sales in Inventory Ratio