Skip to main content

MBA NOTES: EFFICIENCY RATIOS

EFFICIENCY RATIOS

Cash Turnover
Measures how effective a company is utilizing its cash.

Formula         Net Sales
                       Cash

Sales to Working Capital (Net Working Capital Turnover)
Indicates the turnover in working capital per year. A low ratio indicates inefficiency, while a high level implies that the company's working capital is working too hard.

Formula          Net Sales
                       Average Working Capital

Total Asset Turnover
Measures the activity of the assets and the ability of the business to generate sales through the use of the assets.

Formula          Net Sales
                        Average Total Assets

Fixed Assets Turnover
Measures the capacity utilization and the quality of fixed assets.

Formula           Net Sales
                         Net Fixed Assets

Day's Sales in Receivables
Indicates the average time in days, those receivables are outstanding (DSO). It helps determine if a change in receivables is due to a change in sales, or to another factor such as a change in selling terms. An analyst might compare the days sales in receivables with the company's credit terms as an indication of how efficiently the company manages its receivables.

Formula       Gross Receivables 
                     Annual Net Sales/365

Accounts Receivable Turnover
Indicates the liquidity of the company's receivables.

Formula       Net Sales
                     Average Gross Receivables

Accounts Receivable Turnover in Days
Indicates the liquidity of the company's receivable in days.

Formula         Average Gross Receivables
                       Annual Net Sales/365

Inventory Turnover
Indicates the liquidity of the inventory.

Formula             Cost of Goods Sold
                           Average Inventory

Inventory Turnover in Days
Indicates the liquidity of the inventory in days.

Formula            Average Inventory
                          Cost of Goods Sold / 365

Operating Cycle
Indicates the time between the acquisition of inventory and the realization of cash from sales of  inventory. For most companies the operating cycle is less than one year, but in some industries it is longer.

Formula          Accounts Receivable turnover in Days + Inventory Turnover in Day

Days Payables Outstanding
Indicates how the firm handles obligations of its suppliers.

Formula          Ending Accounts Payable
                        Purchases / 365


Payables Turnover
Indicates the liquidity of the firm's payables.

Formula      Purchases
                   Average Accounts

Payables Turnover in Days
Indicates the liquidity of the firm's Payables in days.

Formula     Average Accounts Payable
                   Purchases / 365

SYNOPSIS OF FINANCIAL ANALYSIS
FINANCIAL STATEMENTS / FINANCIAL REPORTS
USERS OF FINANCIAL STATEMENTS
TYPES OF FINANCIAL ANALYSIS
TOOLS OF FINANCIAL ANALYSIS (METHODS)
RATIO ANALYSIS
CLASSIFICATION OF RATIOS
LIQUIDITY RATIOS
PROFITABILITY RATIOS
LEVERAGE RATIO
EFFICIENCY RATIO


MBA NOTES
Labels:

Comments

Post a Comment

Popular posts from this blog

MARKOWITZ MODEL

MARKOWITZ MODEL Portfolio Selection: If number of portfolio we use this method to select the portfolio. for example groups of protfolios sample A:  NBP, Nestle B:  NBP, Nestle, MCB C:  Lucky, Nestle Feasible Set of Portfolio: The number of portfolio which are available for their selection Efficent Portfolio: (Max. return, less risky) The portfolio which is selected from the feasible set of protfolio. Decision Rules 1: If the different portfolio have same return then we select that portfolio who's risk is minimum. Decision Rules 2: If the different protfolio have same risk then we should select that portfolio who's return is maximum. Draw Back: This model just focus only those portfolio who's return are same or risk are same. It ignore the other portfolio. Example: No. of Portfolio          Return          Risk A                       ...
Post a Comment
Read more

RETURN PORTFOLIO ANALYSIS

RISK AND RETURN  PORTFOLIO ANALYSIS To check how much return and risk will be faced by investor on portfolio investment is called risk and return protfolio analysis In this question we show only how to calculate return. Suppose after analysis we get these results     Pepsi E(R) = 12%    S.D= 9%        amount=50000 Nestle E(R) = 20%  S.D= 12%       amount=30000 Lucky Cement = E(R) = 10%  S.D= 5%     amount=20000 what will be tatal risk and return? Portfolio Return: R p = ∑W x  E (R)  Rp = Return on portfolio E(R) = Expected return ∑W = weights what formula will be for three securite return calculation Rp = Wa x  E (R)a + Wb x  E (R)b +Wc x  E (R)c Weight: The portion of your investment amount invest in a single security is called weight. Weight of single security = single security amount / total all securities amount Tatal amount = 50000 + 300...
Post a Comment
Read more

CAPM MODEL (CAPITAL ASSET PRICING MODEL)

According to this model company have to face two main types of risk. Risk= Systematic + un-systematic Systematic Risk: The risk face by the company due to its external environment is called systematic risk. This risk cannot be controled by the company. Example: Pocitical instability, war in the country, energy crises in the country etc. Un-Systematics Risk: The risk face by the company due to its internal environment is called un-systematic risk.This risk can be conroled by the company. Example: shortage of employees, Clash between the management etc. CAP MODEL: A model which shows the relationship between the systematic return and not shows un-systematic. _ R = R f + ( R m - R f) x    β (beta) _ R = Return (expected) R f = Risk free Return The minimum return which is desire by the investor R m = Market Return The return which is provided by the market β = systematic Risk Note = when minimum then always keep the Rf value less and Rm val...
Post a Comment
Read more