AAKASHAYA PATRA SEVEN STAR SMART EDUCATION SERIES PART – 59: 26.09.2020

-

 

Financial Ratios =Management Efficiency Ratios

Last week we had seen details about some Management Efficiency Ratios like Total Asset Turnover Ratio, Inventory Turnover Ratio and Inventory Number of Days.


This week we shall try to understand the remaining two-Management Efficiency Ratios which are - Receivables Turnover Ratio and Days of Sales Outstanding.

Receivables Turnover Ratio:


The receivables turnover ratio is the ratio of Net Sales to the Average Accounts Receivable. Accounts Receivable Turnover Ratio = Revenue / Average Receivables This financial ratio indicates how many times in a given period of time, the company receives money from its debtors and customers. In other words, it shows company's effectiveness in extending credit and in collecting debts on that credit. Higher the ratio, better it is as a high number indicates that the company collects cash more frequently.

Days of Sales Outstanding: 

Days of Sales Outstanding (DSO) also known as Average Collection Period or the Day Sales in Receivables shows the average cash collection period for the company i.e., the time lag between billing and collection.

Both Receivables Turnover and the Days Sales Outstanding indicate the credit policy of the company.


Days Sales Outstanding = 365 / Accounts Receivable Turnover Ratio

Lesser the number of days, the better it is, as quicker the cash collected from the creditors, faster the cash can be used for other activities. 

A higher number indicates that customers are taking much longer time to pay their bills. This can be due to various reasons like - company is offering longer credit to customers to generate sales, products are sold to customers who are less credit-worthy, lot of competition in market, or customers are dissatisfied with company's products and services. 

If DSO has been on an increasing trend since last few years then it's a warning sign which needs to be thoroughly investigated before investing in such a company. 

Another important thing is that one should never analyse DSO values on quarterly basis as for seasonal business cycle companies DSO value during peak season and off season can be different altogether.

 

FOR MORE SUCH TYPE OF EDUCATION JOINT OUR ONLINE SERIES AND BATCHES AND BE A PRO TRADER CONTACT ON 7028 421 786.

 

Comments

Post a Comment

Popular posts from this blog

AAKASHAYA PATRA SEVEN STAR SMART EDUCATION SERIES PART – 61 : 10.10.2020

-
Image
                           Financial Ratios- Liquidity Ratio As the name indicates, these financial ratios help us to evaluate the ability of the management to use its assets and manage its liabilities effectively. Commonly used Management Efficiency Ratios include –   1. Fixed Asset Turnover Ratio 2. Working Capital Turnover Ratio 3. Total Asset Turnover Ratio 4. Inventory Turnover Ratio 5. Inventory Number of Days 6. Receivables Turnover Ratio 7. Days of Sales Outstanding   Fixed Asset Turnover Ratio: The fixed-asset turnover ratio is the ratio of net sales to the fixed assets of the company. Fixed Asset Turnover Ratio = Net Sales / Average Net Fixed Assets This ratio is used to measure the operating performance of the company, i.e., how efficiently a company is producing sales with its machines and equipment. In general, a higher fixed-asset turnover ratio indicates that a company has more effectively utilized investment in fixed assets to generate revenue.A de
Read more
-
Image
16.06.2019 AAKASHAYA PATRA SEVEN STAR SMART EDUCATION SERIES PART – 12 : Stochastic Indicator Stochastic is known as one of the reliable leading indicator to forecast the Price Reversal or Swing Reversal, its also give an idea about stock over bought position as well as stock over sold position Stochastic Indicator does not follow price or volume but it follow momentum of the trend For ready reference, Formula of the Stochastic Indicator as below : % K = (Most Recent Closing Price - Lowest Low) / (Highest High - Lowest Low) × 100 %D = 3-day SMA of %K Lowest Low = lowest low of the specified time period Highest High = highest high of the specified time period There is a two line are available in stochastic indicator, %K Line known as fast line and %D is known as slow line %D is known as a slow line because its a SMA of %K Default setting is 14 period it means it consider recent last 14 persod data as per formula in calculation We can use this Stocha
Read more

AAKASHAYA PATRA EXCLUSIVE STOCK FOR INVESTMENT: 21.06.2020

-
Image
DOLLAR INDUSTRIES LTD CMP 137 ENTRY 135 TO 130 STOPLOSS 100 TARGET 300++ TIME: 36 MONTHS Dollar Industries Limited has become one of the leading brands in the hosiery sector with an enviable 15% market share and a significant percentage in textile exports of the total production in the Indian hosiery market. It has also made a noticeable presence across social media and e-commerce platforms. Dollar has extensively penetrated across 29 states in India. Not only that, its products have also gone beyond the boundaries of the country and has emerged as the highest selling Indian innerwear brand in the UAE and the Middle East, marking its presence in places like Oman, Basra, Jordan, Qatar, Kuwait, Bahrain, Yemen, Iraq, Myanmar, Nepal, Nigeria and U.A.E. Having fused its position in Gulf countries the company is now assertively looking at the rest of the world with collections that promise to delineate the string. Dollar Industries is the only hosiery and knitwear company in India c
Read more