Efficiency Ratios

Efficiency ratios are used to measure the speed with which various accounts are converted into sales or cash. Some of these are: inventory turnover, average collection period, fixed asset turnover, total asset turnover.

Inventory Turnover

Inventory turnover commonly measures the activity, or liquidity, of a firm's inventory:

Inventory turnover = cost of goods sold
inventory

Jimco's turnover in 1993 yields

$38,000,000 = 3.17 times
$12,000,000

industry average = 2.95 times

Jimco's total asset turnover ratio compares well with the industry norm of 2.95.


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Finance For Strategic Management
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