The financial ratio accounts receivable turnover is a company's annual sales divided by the

company's average balance in its Accounts Receivable account during the same period of time.

For example, if a company’s sales for the most recent year were $6,000,000 and its average
balance in Accounts Receivable for the same twelve months was $600,000, its accounts receivable
turnover ratio is 10. This indicates that on average the company’s accounts receivables turned over
10 times during the year, or approximately every 36 days (360 or 365 days per year divided by the
turnover of 10).

What is the inventory turnover ratio?

The calculation for the inventory turnover ratio is: Cost of Goods Sold for a Year divided
by Average Inventory during the same 12 months.

To illustrate the inventory turnover ratio, let’s assume 1) that during the most recent year a
company’s Cost of Goods Sold was $3,600,000, and 2) the company’s average cost in its
Inventory account during the same 12 months was calculated to be $400,000. The company’s
inventory turnover ratio is 9 ($3,600,000 divided by $400,000) or 9 times.

The higher the inventory turnover ratio, the better, provided you are able to fill customers' orders
on time. It would be foolish to lose customers because you didn't carry sufficient inventory
quantities.

What is the total asset turnover ratio?

The total asset turnover ratio indicates the relationship of net sales for a specified year to the
average amount of total assets during the same 12 months.

Let's assume that during a recent year a corporation had net sales of $2,100,000 and its total
assets during the same 12 month period averaged $1,400,000. The company's total asset turnover
for the year was 1.5 (net sales of $2,100,000 divided by $1,400,000 of average total assets).

This ratio will vary by industry, as some industries are more capital intensive than others.
Always compare your company's financial ratios to the ratios of other companies in the same
industry.

What is the fixed asset turnover ratio?

The fixed asset turnover ratio shows the relationship between the annual net sales and the net
amount of fixed assets.
The net amount of fixed assets is the amount of property, plant and equipment reported on
the balance sheet after deducting the accumulated depreciation. Ideally, you should use
the average amount of net fixed assets during the year of the net sales.

A corporation having property, plant and equipment with an average gross amount of $10
million and an average accumulated depreciation of $4 million would have average net fixed
assets of $6 million. If its net sales were $18 million, its fixed asset turnover would be 3 ($18
million of net sales divided by $6 million of average net fixed assets).

What is the working capital turnover ratio?

The working capital turnover ratio is also referred to as net sales to working capital. It indicates
a company's effectiveness in using its working capital.

The working capital turnover ratio is calculated as follows: net annual sales divided by the
average amount of working capital during the same 12 month period.

For example, if a company's net sales for a recent year were $2,400,000 and its average amount
of working capital during the year was $400,000, its working capital turnover ratio was 6
($2,400,000 divided by $400,000).

Working capital is defined as the total amount of current assets minus the total amount
of current liabilities. As indicated above, you should use the average amount of working
capital for the year of the net sales.

As with most financial ratios, you should compare the working capital turnover ratio to other
companies in the same industry and to the same company's past and planned working capital
turnover ratio.