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 commonly measures the activity, or liquidity, of a firm's inventory:
|Inventory turnover =||cost of goods sold|
Jimco's turnover in 1993 yields
|$38,000,000||= 3.17 times|
industry average = 2.95 times
Jimco's total asset turnover ratio compares well with the industry norm of 2.95.
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