Читать книгу Entrepreneurial Finance - Robert D. Hisrich - Страница 54

Regardless of what kind of industry a company is in, it must invest in assets to perform its operations. Management efficiency ratios measure how effectively the company uses these assets, as well as how well it manages its liabilities.

The accounts receivable turnover ratio measures how effective the company's credit policies are. It is calculated as

This ratio essentially measures how many times a company “turns over” its accounts receivable during the course of the year. If accounts receivable turnover is too low, it indicates the company is being too generous granting credit or is having difficulty collecting from its customers. All else equal, higher receivables turnover is better. A similar measure of efficiency is the days sales outstanding (DSO) ratio, calculated as

This ratio measures the number of days’ worth of sales that are tied up in accounts receivable. You can think of it as the average lag between the date of sale and the date the payment is received on the average account receivable. Entrepreneurs want to keep this number low, as having money tied up in accounts receivable affects the firm's working capital.

Working capital is also affected by the amount of inventory that a firm holds on its balance sheet. A measure of how well managers manage the firm's inventory is the inventory turnover ratio, calculated as

Notice that the numerator has cost of goods sold and not sales. This is because inventory is valued at cost, and therefore the cost of goods sold measure gives a better representation of the inventory's value. Like the accounts receivable turnover ratio, the more times a firm can “turn over” its inventory, the more efficiently it handles its assets. The days of inventory ratio is

It measures the number of days that a firm sits on its inventory before it is sold. The firm would want to hold onto its inventory the least amount of days possible to avoid inventory obsolescence and to increase working capital.

On the liabilities side, the accounts payable turnover ratio measures how a company manages paying its own bills. High accounts payable turnover is a signal that a firm isn't receiving very favorable payment terms from its own suppliers or isn't paying its accounts payable in a timely manner. All else being equal, average to slightly lower payable turnover is better. It is calculated as

While the above ratios focus on current assets and liabilities, a firm must also understand how efficiently management uses the long-term assets they have been entrusted with. The total asset turnover ratio is a catch-all efficiency ratio that highlights how effective management is at using both short-term and long-term assets and measures a company's ability to generate sales given its investment in total assets. It is calculated as

Generally speaking, the higher the ratio, the better it is since it indicates the company is generating more revenues per dollar of assets.

One can also analyze the efficiency of the firm's organizational structure (a topic not reported on the balance sheet). The sales to employee ratio describes how well employees are generating sales for the firm. This measurement can be interpreted as being derivative of the firm's organizational success. The calculation is straightforward:

The ratio can be especially insightful for firms in the “people business,” such as retailers, consultants, and software companies.

It is important to note that, if annualized data are being used, ratios that involve balance sheet items (accounts receivable, inventory, and total assets) are usually calculated as the average of the beginning and ending balances. This is done to account for changes in these items throughout the year. If shorter periodicity is in the play, then the values for the end of each period are used.