Efficiency Ratios

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Efficiency Ratios

Efficiency ratios measure the quality of a business' receivables and how efficiently it uses and controls its assets, how effectively the firm is paying suppliers, and whether the business is overtrading or undertrading on its equity (using borrowed funds).

Accounts Receivable Annual Change:
On a company's balance sheet, accounts receivable is the amount that customers owe a business. Sometimes called trade receivables, they are classified as current assets. If AR is rising, customers aren't paying their bills and you should investigate. Is the industry suffering the same type of increase?

Days waiting for payment this year/last year:
How quickly are customers paying for goods received? If a high number, there may be something wrong with the product. Above 60, investigate, below 60 is good, and below 45 is superb.

Sales to Inventories Ratio
Sales growing faster than inventories is good; inventories growing faster than sales is not good.

Annual Sales Change	= Sales to Inventories Ratio

Annual Inventories Change

Inventories Annual Change:
Decreasing is good. If increasing, is the increase related to a company product, or is there a slowdown in the industry?

Inventory Turnover Days this year:
This represents the time products sit on the shelf waiting to be sold. The best comparison is with other companies in the same industry.

Sales to Accounts Receivable Ratio:
This ratio measures the number of times that receivables turn over during the year. The higher the turnover of receivables, the shorter the time between sale and cash collection. If a company's Turnover Rate is significantly lower than industry norms, the underlying reason (poor collection methods, high risk customers, low sales) needs to be pinpointed.

Sales	= Sales to Accounts Receivable Ratio

Accounts Receivable