Explain turnover group ratios.

Explain turnover group ratios.

Under this group following ratios are calculated which indicates the efficiency of the organization to use the various kinds of assets by converting them in the form of sales.

- Fixed Assets Turnover Ratio : indicates that the fixed assets are turned over in the form of sales more number of times. High fixed assets turnover ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in fixed assets.

Formula to calculate Fixed assets turnover ratio = Net Sales / Fixed Assets

- Current Assets Turnover Ratio indicates that the current assets are turned over in the form of sales more number of times. A high current assets turnover ratio indicates the capability of the organization to achieve maximum sales with the minimum investment in current assets. Higher the current ratio better will be the situation.

Formula to calculate current assets turnover ratio = Net Sales / Current Assets

- Working Capital Turnover Ratio indicates that working capital i.e difference between current assets and current liabilities is turned over in the form of sales more number of times. A high working capital turnover ratio indicated the capability of the organization to achieve maximum sales with the minimum investment in the working capital.

Formula to calculate working capital turnover ratio = Net Sales / Working Capital

- Inventory Turnover Ratio : indicates that inventories are turned over in the form of sales more number of times. A high inventory turnover ratio indicates that maximum sales turnover is achieved with the minimum investment in the inventory. High turnover ratio is desirable.

Formula to calculate inventory turnover ratio = Cost of goods sold / Average Inventory

- Debtors Turnover Ratio indicates the speed at which the sundry debtors are converted in the form of cash.

Formula to calculate debtors turnover ratio = Net Credit Sales / Closing Sundry Debtors

This ratio is supported by the calculation of average collection period:

Calculation of daily sales: Net Credit Sales / No. of working days

Calculation of average collection period: Closing Sundry debtors / Daily Sales

- Capital Turnover Ratio indicated the efficiency of the organization with which the capital employed is being utilized. A high capital turnover ratio indicates the capability of the organization to achieve maximum sales with minimum amount of capital employed. Higher the capital turnover ratio better will be the situation.

Formula to calculate capital turnover ratio = Sales / Capital Employed