In this tutorial, we have covered three key turnover ratios: receivables turnover ratio, inventory turnover ratio, and accounts payable turnover ratio. Their meanings, formulas, calculations, and interpretations are also covered in depth.
What are Turnover Ratios?
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Turnover ratios evaluate how effectively a company’s facilities, including its assets and liabilities, are used. Inventory turnover ratios, receivables turnover ratios, accounts payable turnover ratios, and so on are examples of turnover ratios.
Turnover Ratios Formulas
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Accounts Receivable Turnover Ratio Formula = Net Credit Sales / Average Accounts Receivables
Inventory Turnover Ratio Formula = Cost of Goods Sold / Average Inventory
Accounts Payable Turnover Formula = Purchases / Average Accounts Payables
Relevance and Use
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– The receivables turnover ratio indicates how quickly a company can convert receivables into cash.
– The inventory turnover ratio is a measure of how quickly a company can sell its inventory.
– Accounts payable turnover ratio reflects how quickly a company pays its suppliers and, as a result, how well it manages its debts and cash flow.
For more details, you can refer to our article – https://www.wallstreetmojo.com/turnover-ratios-formula/
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