Accounting

Definition: The Capital Employed Turnover Ratio shows how efficiently the sales are generated from the capital employed by the firm. This ratio helps the investors or the creditors to determine the ability of a firm to generate revenues from the capital employed and act as a key decision factor for lending more money to the asking firm. The formula to compute this ratio … [Read more...] about Capital Employed Turnover Ratio

Definition: The Fixed Assets Turnover Ratio shows, how efficiently the fixed assets are used to generate sales. Simply, this ratio shows the efficiency of a firm in generating profits relative to the investments in the fixed assets. The fixed assets turnover ratio is suitable for the heavy industries where huge capital is employed in the investments such as manufacturing. … [Read more...] about Fixed Assets Turnover Ratio

Definition: The Average Collection Period, also called as Debt Collection Period, shows how much time business takes to realize the credit sales. Simply, how long will it take to recover payments from the debtors against the credit sales? This period encompasses the duration when the credit was given to the customer or client and the date when the cash was realized against … [Read more...] about Average Collection Period

Definition: The Debtors Turnover Ratio also called as Receivables Turnover Ratio shows how quickly the credit sales are converted into the cash. This ratio measures the efficiency of a firm in managing and collecting the credit issued to the customers. One important thing that needs to be taken care of is, generally the companies use total sales in the place of net sales, … [Read more...] about Debtors Turnover Ratio

Definition: The Inventory Turnover Ratio, also called as Stock Turnover Ratio, shows how frequently the inventory is converted into the sales. Simply, this ratio measures the capacity of a firm to generate revenues from the sale of its inventory. Ideally, the company’s inventory turnover ratio should be compared with the industry average. But however, companies do evaluate … [Read more...] about Inventory Turnover Ratio

Definition: The Cash Ratio shows how quickly the firm can pay off its liabilities relative to Cash, bank balances, marketable securities since these are considered as the most liquid component of the current assets. Simply, this ratio measures the ability of a firm to meet its current obligations with the cash or cash equivalents. It is the most stringent liquidity ratio and … [Read more...] about Cash Ratio

Definition: The Acid Test Ratio also referred to as a Quick Ratio is calculated to determine the ability of a firm to pay off its current liabilities with Quick Assets. What are Quick Assets? The quick assets are the current assets that are highly liquid and can be converted into cash within 90 days or in a short period of time. Generally, all the current assets are the … [Read more...] about Acid-test Ratio

Definition: The Current Ratio is the part of the liquidity ratio that helps to determine the firm’s ability to pay off its short-term obligations with its Current Assets. Simply, a firm uses the current assets, such as cash, cash equivalents, marketable securities, bills receivables, etc. to meet its short-term debt. Generally, the current assets more than twice the current … [Read more...] about Current Ratio

Definition: The Return on Capital Employed Ratio measures the profits generated from each capital employed. Unlike return on equity that measures only the company’s common equity, the return on capital employed is a comprehensive approach that measures the overall financial performance of the company, by taking both the equity and the liabilities into consideration. The … [Read more...] about Return on Capital Employed