This ratio helps the company to know the collection and credit policies of the firm. Low ratio indicated that stock is not consumed/ sold or remains in a warehouse for a longer period of time.įormula: Cost of Goods Sold/Average InventoryĪverage Inventory = (Opening Stock + Closing Stock)/2 ii. This ratio indicates how fast inventory/ Stock is consumed/ sold. This ratio describes the relationship between the cost of goods sold and inventory held in the business.
Formula: (Sales or Cost of Goods Sold)/ Working Capital i. A high ratio represents efficient utilization of working Capital in generating sales. This ratio measures the efficiency of the firm in utilizing its Working Capital. Formula: (Sales or Cost of Goods Sold)/ Current Assets D.
A high ratio represents efficient utilization of Current Assets in generating sales. This ratio measures the efficiency of the firm in utilizing its Current Assets. Formula: (Sales or Cost of Goods Sold)/ Fixed Assetsįile Now C. A high ratio represents efficient utilization of Fixed Assets in generating sales. This ratio measures the efficiency of the firm in utilizing its Fixed Assets. Formula: (Sales or Cost of Goods Sold)/ Total Assets B. A high ratio represents efficient utilization of total Assets in generating sales. This ratio measures the efficiency of the firm in utilizing its Assets. As this ratio measures the efficiency of the utilization of assets of the company. This ratio helps to understand how efficient the management of the company is. Usually, this ratio indicates how much sales have taken place in comparison to various categories of assets.
how efficiently the assets of the company is being used by the management to generate maximum possible revenue. We often call this as “Assets Management Ratio” i.e. Activity ratios measures how efficiently the business is running.
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