turnover

Examples of turnover in the following topics:

• Using the Receivables Turnover Ratio

  • The receivables turnover ratio measures how efficiently a firm uses its assets.
  • The receivables turnover ratio, also called the debtor's turnover ratio, is an accounting measure used to measure how effective a company is in extending credit as well as collecting debts.
  • The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.
  • Sometimes the receivables turnover ratio is expressed as the "days' sales in receivables":

• Inventory Turnover Ratio

  • Inventory turnover is the measure of the number of times inventory is sold or used in a time period such as a year.
  • The equation forinventory turnover is the cost of goods sold (COGS) divided by the average inventory.
  • Inventory turnover is also known as inventory turns, stockturn, stock turns, turns, and stock turnover.
  • A low turnover rate may point to overstocking, obsolescence, or deficiencies in the product line or marketing effort.
  • In assessing inventory turnover, analysts also consider the type of industry.

• Asset Turnover Ratio

  • The asset turnover ratio is a measure of how well a business is using all of its assets to generate sales.
  • One ratio that analysts use to evaluate a company's strength is the asset turnover ratio.
  • $Asset\quad Turnover\quad =\frac { Net\quad Sales\quad Revenue }{ Average\quad Total\quad Assets }$
  • The asset turnover ratio is a measure of how well a business is using all of its assets to generate sales.
  • Generally, an analyst will compare a business's asset turnover ratio to the business's ratios from prior accounting periods or to the business's competitor's asset turnover ratio for the same period.

• Efficiency Metrics

  • Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory (to calculate average inventory, add the balances of beginning and ending inventory and divide by 2)
  • The inventory turnover ratio is a measure of the number of times inventory is sold or used in a time period, such as a year.
  • A low turnover rate may point to overstocking, obsolescence, or deficiencies in the product line or marketing effort.
  • A high turnover rate may indicate inadequate inventory levels, which may lead to a loss in business as the inventory is too low.

• Return on Assets

  • The Return on Total Assets ratio is similar to the Asset Turnover Ratio in that both measure how effective a business's assets are in generating returns for the business.
  • But while the asset turnover ratio is focused on the business's sales, return on assets is focused on net income.

• Importance of Cash Flow Accounting

  • For example, a company may be profitable but generate little operational cash (as may be the case for a company that barters its products rather than selling for cash or when its accounts receivable turnover is long).

• Additional Factors to Consider

  • Several factors can indicate management ability: accounts receivable, inventory, fixed assets, and total asset turnover; employee turnover; condition of the facilities; family involvement, if any; quality of books and records; and sales, as well as gross and operating profit.