Financial Measures - Definition and Formula
Inventory Turnover (INVT) Cost of Goods Sold/(Average) Inventory
Inventory turnover is a ration showing how many times a company has sold and replaced inventory during a given period. A company can then divide the days in the period by the inventory turnover formula to calculate the days it takes to sell the inventory on hand. Calculating inventory turnover can help businesses make better decisions on pricing, manufacturing, marketing and purchasing new inventory.
Return on Assets (ROA) Net Income/Average Total Assets
Return to assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives a manager, investor, or analyst an idea as to how efficient a company's management is ay sing its assets to generate earnings. Return on assets is displayed as percentage.
Accounts Payable Turnover (APT) Cost of Goods Sold/Accounts Payable
The accounts payable turnover ratio shows investors how many times per period a company pays its accounts payable. In other words, the ratio measures the speed at which a company pays its suppliers. Accounts payable is listed on the balance sheet under current liabilities.
Accounts Receivable Turnover (ART) Sales Revenue/Account Receivable
The accounts receivable turnover ratio is an accounting measure used to quantify a company's effectiveness in collecting its receivables or money owed by clients. The ration shows how well a company uses and manages the credit it extends to customers and how quickly that short-term debt is collected or is paid. The receivables turnover ratio is also called the accounts receivable turnover ratio.
Inventory Weeks Coverage Weeks per year/Inventory turns
The average number of days goods remain in inventory before being sold. As a measure of short-term sales potential, a number above the industry norm indicates problems with sales forecasts. And a number below norm indicates loss of sales due to the company's inability to fulfill demand. Also called days cover, stock cover, days of inventory, or days sales inventory. Formula: Average inventory x 365/sales revenue. Also can be calculated in weeks.
Cash to Cash (C2C) Cycle Weeks payable (1/APT) + Weeks in Inventory (1/INVT) + Weeks Receivable (1/ART)
The cash conversion cycle (CCC) is a metric that expresses the time (measured in days) it takes for a company to convert its investments in inventory and other resources into cash flows from sales. Also called the Net Operating Cycle or simply Cash Cycle, CCC attempts to measure how long each net input dollar is tied up in the production and sales process before it gets converted into cash received. This metric takes into account how much time the company needs to sell its inventory, how much time it takes to collect receivables, and how much time it has to pay its bills without incurring penalties. CCC is one of several quantitative measures that helps evaluate the efficiency of a company's operations and management. A trend of decreasing or steady CCC values over multiple periods is a good sign, while rising ones should lead to more investigation and analysis based on other factors. One should bear in mind that CCC applies only to select sectors dependent on inventory management and related operations.
Return on Equity (ROE) ROE= Net Income/Total Shareholder Equity
The return on equity ratio or ROE is profitability ratio that measures the ability of a firm to generate profits from its shareholders investments in the company. The return on equity ratio shows how much profit each dollar of common stockholders equity generates. So a return on 1 means that every dollar of common stockholders equity generates 1 dollar of net income. This is an important measurement for potential investors because they want to see how efficiently a company will use their money to generate net income. ROE is also an indicator of how effective management is at using equity financing to fund operations and grow the company.
Property, Plant, & Equipment Turnover (PPET) Sales Revenue/(PPET)
This ratio tells you how many dollars of sales your company gets for each dollar invested in property, plant, and equipment (PPE). It's a measure of how efficient you are at generating revenue from fixed assets such as buildings, vehicles, and machinery. The higher our (PPE) Turnover, the more efficient we are with our capital investments.