Thursday 3 January 2019

Efficiency Ratio | Formula

The ratio of the activity or often call Efficiency ratio is a financial Ratio analysis types. That measures how effectively a company leveraging their assets to generate income. In other words, the ratio of the activity or the ratio of Efficiency measures the ability of a business to convert various types of assets or the non-cash assets into cash. Companies that can more quickly alter its assets into cash or sales, the more efficient performance.

Ratio analysis this Efficiency Ratio or Activity will be more meaningful when compared with similar industries. This is due to the different type of Industry or industry that moves in different areas will have different activity ratios as well. For example, a company engaged in the trading of commodities daily needs (rice, sugar, oil, salt, and others) must have assets and inventory with different companies that sell oil and gas commodities.

Activity ratios or Efficiency Ratio is very beneficial to the company's management to improve and enhance the performance of the company. For investors and creditors, the ratio of this activity is very useful to assess and measure the efficiency and profitability of the company in question. This is because the ratio of these activities will go hand in hand with a ratio of profitability. When a company is more efficient with its resources, then these companies will likely be profitable companies or companies that have a high profitability.

The types of Activity Ratio (Efficiency Ratio)

The ratio of the activity (the Activity Ratio) is also often refer to as the ratio of efficiency (Efficiency Ratio). The ratio asset management (Asset Management Ratio). Ratio-financial ratio which belongs in this Activity including Ratio Analysis is the ratio of Inventory Turnover (Inventory Turnover Ratio). The Total Assets Turnover Ratio (Total Active Turnover Ratio) and the ratio of Turnover Fixed Assets (Fixed Asset Turnover Ratio).

Inventory Turnover Ratio

Inventory Turnover ratio (Inventory Turnover Ratio) is a type of activity ratio that shows how effective the inventory maintained by comparing the cost of goods sold by the average inventory for a given period. In other words, Inventory Turnover Ratio this is the ratio of the rate the efficiency of inventory control company goods bought for resale. The following is the formula of the ratio of Inventory Turnover (Inventory Turnover Ratio).

Inventory Turnover ratio = sales/average Inventory

Total Assets Turnover Ratio (Total Assets Turnover Ratio)

 The Total Asset Turnover Ratio is the ratio of efficiency to measure. The efficiency of the use of the assets of the company against product sales. In other words, the ratio of Turnover Total assets it is the measurement of the company's ability. To generate sales from total assets by comparing the net sales by average total assets. The following is the formula the ratio Total Assets Turnover (Total Asset Turnover Ratio).

The Ratio Total Assets Turnover = Sales/Total Assets

Fixed Assets Turnover Ratio (Fixed Assets Turnover Ratio)

As the name suggests, the ratio of Fixed Assets Turnover or Fixed Assets Turnover Ratio is to compare. The fix assets of the company by sales.

This ratio can indicate how effective and efficient the company uses its assets to generate revenue. The following is the formula of the ratio of the velocity of fixed assets (Fixed Assets Turnover Ratio).

Fixed Assets Turnover Ratio = Fixed Assets/Total Sales

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