• thinkigcse.com

These ratios state how efficiently certain areas of the business are performing.

Stock turnover ratio

It indicates the number of times in a year the average stock can be sold off. The more times the stock is sold the more efficient the business.


Stock turnover ratio=
Cost of goods sold
Average stock at cost price

Average Stock is calculated as (Opening stock + Closing stock)/2

Asset turnover ratio

Asset turnover is a measure of how effectively the assets are being used to generate sales. It is one of the ratios that would be considered when interpreting the results of profitability ratio analyses like ROCE.


Asset turnover ratio=
Sales turnover
Total assets-current liabilities

If the asset turnover is high than its competitors, it shows as an over investment in assets.

However, a new firm may have a higher asset turnover ratio than its competitors as the assets are newer and have a higher value. Moreover, some firms may use a lower rate of depreciation than its competitors.

In some cases, firms may purchase assets whereas its competitors firms are leasing assets.

Trade debtor collection period (Debtors days)

This ratio indicates how efficient the company is at controlling its debtors.


Debtors days=
Total Debtors
X 360
Total Sales turnover

Trade creditor payment period (Creditors Days)

This ratio indicates how the company uses short term financing to fund its activities.


Creditors days=
Total Creditors
X 360
Cost of sales

Both these ratios are useful for intra-firm comparison.

Exciting News!

IMPORTANT MESSAGE

Quizzes and worksheets on this website have been developed in Flash format. Flash is no more supported by browsers. Therefore, you might see blank pages on some instances. Install Flash player plugin for Chrome from Chrome Web Store. Click here 

Similarly, for other web browsers you will have to activate the relevant flash player plugins.

JOIN OUR ONLINE COURSES

New Youtube Channel - ThinkIGCSE

Hi Everyone, I have launched a new YouTube channel with more than a 100 videos on  Economics and Business Studies, tailored specifically for IGCSE and A Level and IBDP students.

Subscribe now and join us on this learning journey: @thinkIGCSE

WHO'S ONLINE

We have 185 guests and no members online

Save
Cookies user preferences
We use cookies to ensure you to get the best experience on our website. If you decline the use of cookies, this website may not function as expected.
Accept all
Decline all
Read more
Analytics
Tools used to analyze the data to measure the effectiveness of a website and to understand how it works.
Google Analytics
Our website uses Google Analytics to understand how you interact with our site and improve your browsing experience. These cookies collect information in an anonymous form, including the number of visitors to the site, where visitors have come from, and the pages they visited. The data helps us analyze trends and user behavior to enhance our website's functionality and content.
Accept
Decline
Marketing
Set of techniques which have for object the commercial strategy and in particular the market study.
Marketing
Our website uses Google marketing cookies to deliver personalized ads and measure the effectiveness of our advertising campaigns. These cookies track your online activity to help us show you relevant ads on Google services and partner websites.
Accept
Decline