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Operational 

Efficiency 
Ratio or
Efficiency
Ratio
Operational Efficiency Ratio

Measures the ability of the company to


utilize its assets.
Measured based on the company’s ability to
generate sales from the utilization of its
assets.
Turnover ratios are used to measured
operational efficiency ratio.
Operational Efficiency Ratio

1. Asset Turnover – an indicator of the


efficiency with which the company is utilizing
all of its assets.
 It measures the peso value of sales
generated for every peso of the company’s
assets.
The higher the turnover rate, the more
efficient the company in using its assets.
Operational Efficiency Ratio

2. Fixed Asset Turnover


The ratio is similar to asset turnover, except
that it is focused on fixed asset only.
Fixed asset is composed of property plant
and equipment
It is an indicator of the efficiency of fixed
assets in generating sales
Operational Efficiency Ratio
3. Inventory Turnover
 measured based on cost of goods sold
This ratio is an indicator of how fast the
company can sell its inventory.
Operational Efficiency Ratio
3. Inventory Turnover
 Formula:
Inventory Turnover = Cost of Goods Sold
Average Inventory
Average Inventory=Inventory Beg. + Inventory End
2
Operational Efficiency Ratio
4. Days in Inventory
This ratio computes the average
number of days that inventories
are held until sold
Operational Efficiency Ratio
4. Days in Inventory
Formula 1 :
Days in Inventory = Average Inventory
Average Daily Cost of Goods Sold
Average Inventory=Inventory Beg. + Inventory End
2
Average Daily Cost of Good Sold = Cost of Goods Sold
365
Operational Efficiency Ratio
4. Days in Inventory
Formula 2:
Days in Inventory = 365
Inventory Turnover
Operational Efficiency Ratio
5. Accounts Receivable Turnover
Measures the number of times the company can
convert accounts receivable into cash during the
year.
Formula:
Accounts Receivable = Net Sales
Turnover Average Accounts Receivable
Operational Efficiency Ratio
5. Days in Receivable
Measures the company’s collection effectiveness
during the year.
Formula 1:
Days In Accounts = 365
Receivable Accounts Receivable Turnover
Operational Efficiency Ratio
5. Days in Receivable
Formula 2:
Days In Accounts = Average Accounts Receivable
Receivable Average Daily Sale
Average Daily Sales = Sales
365
Average Accounts Receivable = AR beg + AR end
2
Operational Efficiency Ratio
Ratio Formula
Asset Turnover Net Sales
Average Asset
Fixed Asset Turnover Net Sales
Average Fixed Asset
Inventory Turnover Cost of Goods Sold
Average Inventory
Days In Inventory 365
Inventory Turnover
Accounts Receivable Turnover Net sales
Average Accounts Receivable
Days in Accounts Receivable or 365
Average collection Period Accounts Receivable Turnover