Turnover Ratios

This article discusses turnover ratios, which measure how efficiently a firm’s assets are employed. The important turnover ratios are inventory turnover, average collection period, receivables turnover, fixed assets turnover, and total assets turnover.

Questions

• What are turnover ratios?
• How do turnover ratios measure the efficiency of a firm’s assets?
• What are the important turnover ratios?

Answers

• Turnover ratios are ratios that measure how efficiently a firm’s assets are employed. They are based on the relationship between the level of activity, represented by sales or cost of goods sold, and levels of various assets.
• Turnover ratios measure the efficiency of a firm’s assets by comparing the amount of sales or cost of goods sold to the level of assets. For example, inventory turnover measures how fast the inventory is moving through the firm and generating sales.
• The important turnover ratios are inventory turnover, average collection period, receivables turnover, fixed assets turnover, and total assets turnover.