Turnover ratio

Inventory turnover ratio :-   Inventory turnover or stock turnover measure the status of the inventory in moving through the firm and generating sales. It is defined as :- Inventory turnover reflect the efficiency of inventory management. Higher the ratio more will be the efficient management of inventory and vice versa. However this will not be true always, a higher inventory may be caused by low level of inventory which may result in frequent stock out, loss of sale and costomers good will. Debtor Turnover ratio :- This ratio shows how many times subdry debtors ( Account receivable ) turn over during the year it is defined as :- Higher the debtors turnover ratio greater the efficiency of credit management. Average collection period :- Average collection period collection period represents the number of days worth of credit sales that is locked in sundry debtors it is defined as :-                                                Average sundry debtors Average Collection period = ------------------------------                                                Average daily credit sale Average collection period may be compared with firms credit term to jodge the efficiency of credit may. Fixed assets turnover ratio :- Fixed assets turnover ratio measures sales per $ of investment in fixed assets. It is define as :-                                                             Net sales Fixed Assets turnover ratio = -------------------------------                                                 Average Net fixed Assets Fixed assets turnover ratio is supported to measure the efficiency with which fixed assets are employed. high indicates high degree of efficiency in assets utilization and low ratio reflect in-efficient use of assets. However in interpreting this ratio one caution should be burn in mind, when fixed assets of firm are old and sustaintially depreciated the fixed assets turnover tends to be high because the denominator of ratio is very low. Total assets turnover ratio :- Total assets turnover ratio is defined as :-                                                       Net sales Total assets turnover ratio = -------------------------                                                Average total assets This ratio measure how efficiently assets are employed overall.