perotfonal Eicr'ency Ratios Haw efficiently are you utilizing your assets and managing your liabilities? These ratios are used to compare perl-orrnanoe over multiple periods. Operating Expense Rollo = Operating Expenses Total Revenue Accounts Receivable Turnover = _Het Sales Average Accounts Receivable Days In Aooeurls leoelvdslo = Average Accents Receivable sales a ass Inventory Turnover = Cost of Sales Average Inventory Days in Inventory = Average Inventory lEast of Sales 1: H5 Compares expenses to revenue. A decreasing roo is considered desiroble since it generally indicates increased efficiency. Number of times trade receivables turnover during the year. ' The higher the turnover, the sl'iorter the time between sales and collecting cash. What are your meta-her payment habits compared to your payment terms. 1'I'ou may need to step up your collection practices or ' tighten your credit policies. These ratios are only useful if maiority of sales are credit {not odds] sales. The number of times you turn inventoryr over into sales during the year or how many days it tries to sell inventory. This is a good indication of production and purchasing efficiency. A high ratio indicates inventory is selling quickly and that little umsed inventory is being stored [or could also mean inventory shortage]. If the ratio is low, it suggests MTMi, obsolete inventory or selling issues.