Asset management ratios tell you....
Asset Management Ratios.
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#1. Accounts receivable turnover ratio.
The Accounts receivable ratio equation is.
Accounts receivable, X 365, divided by net sales equals.
Tells you how many days it takes to collect money owed to you.
Generally speaking, a higher number is better.
It means that your customers are paying on time and your company is good at collecting.
A low accounts receivable turnover ratio can indicate inefficiency in collecting debts.
A low ratio may show poor management or a riskier customer base.
#2. Inventory Turnover
The Inventory ratio equation is.
Inventory, X 365, divided by Cost of goods sold Equals.
Inventory turnover measures how often a company replaces inventory relative to its cost of sales.
The higher the ratio, the better.
A low inventory turnover ratio might be a sign of weak sales or excessive inventory, known as overstocking.
Let me ask you a question?
Does your business or your life have a balanced level of stock or are you a consumer buying because it's cheap?
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