Financial analysts use many ratios while analyzing a company. Since there are many ratios, it becomes easy to categorize them under broad categories. The following table lists the categories and the key ratios within each category. Category Description Key ratios Activity ratios Activity ratios measure how effectively a business uses its resources, such as receivables […]

# Financial Ratios

## Inventory Turnover and Days of Inventory on Hand (DOH)

Inventory turnover is an important activity ratio, and provides a measure of how effectively a business is using its inventory. These ratios measure how many times the company’s inventory has been turned over or sold during a specified period. For example, an inventory turnover ratio of 10 means that the inventory has been turned over […]

## Receivables Turnover and Days of Sales Outstanding (DSO)

Receivables turnover is an important activity ratio, and provides a measure of how effectively a business is managing its receivables. The receivables turnover ratio measures the number of times the company collected its receivables during a specified period. For example, a receivables turnover ratio of 10 means that the receivables have been collected 10 times […]

## Payables Turnover and Number of Days of Payables

Payables turnover is an important activity ratio, and provides a measure of how effectively a business is managing its payables. The payables turnover ratio measures the number of times the company pays off all its creditors in one year. For example, a payables turnover ratio of 10 means that the payables have been paid 10 […]

## Working Capital Turnover Ratio

Working capital turnover ratio reflects how effectively the company is using its working capital. Working capital turnover ratio measures how much revenue a company generates from every dollar of capital invested during a year. Formula Example Assume that a company has $1.2 million in sales for the year. Its current assets were $700,000, and current […]

## Fixed Asset and Total Asset Turnover Ratio

Fixed Asset and Total Asset turnover ratios reflect how effectively the company is using its assets, i.e., their ability to generate revenue from the given assets. Fixed asset turnover ratio measures how much revenue a company generates from every dollar of fixed assets. Total asset turnover ratio measures how much revenue a company generates from […]

## Activity Ratios – Video Summary

In the previous articles we learned about the key activity ratios: Inventory Turnover and Days of Inventory on Hand (DOH), Receivables Turnover and Days of Sales Outstanding (DSO), Payables Turnover and Number of Days of Payables, Working Capital Turnover Ratio and Fixed Asset and Total Asset Turnover Ratio. The following video from Bionic Turtle provides […]

## Liquidity Ratios (Current Ratio, Quick Ratio, and Others)

Liquidity is a measure of how quickly a firm is able to convert its assets into cash. While analyzing the liquidity position of a company, an analyst uses the common liquidity ratios to measure the company’s ability to pay-off its short-term liabilities. There are four important liquidity ratios: Current Ratio Quick Ratio Cash Ratio Defensive […]

## Cash Conversion Cycle (CCC)

Cash Conversion Cycle is an important concept in liquidity analysis. The cash conversion cycle indicates the time (no. of days) it takes for the cash invested in the business to be converted back to cash. In other words it is the total time taken to sell its inventory, collect the receivables, and pay the creditors. […]