Guys, Can someone explain me the interpretation of turnover ratios- such inventory, AR, AP etc. I do understand the collection, payment period concept but somehow not clear with the turnover thingy. Thanks S
turnover is the period of how quickly the company turns around its receivables, acquires inventory and pays to suppliers. Anything turnover = Most appropriate / anything so receivables turnover = credit sales / average receivables. the larger the ratio, it means that you have low receivables for large credit sales, so its a good sign as you are converting most of your credit into cash. # of days ofrecivables gives you the time it takes you to convert your recivables to cash. so you say receivables / average daily sales similarly you can do for inventory and payables, and combine those three to figure you cash or net operating cycle.