The important Efficiency Ratios often used abroad have the following indicators.
●Assets to Sales (Total asset turnover rate)
●Days Sales Outstanding、DSO(Accounts Receivables turnover days)
●Sales to Inventory (Inventory turnover rate)
Assets to Sales (Total asset turnover rate)
It is the most common indicator that determines the efficiency of a company. It is a ratio often used in Japan but the formula is different in the West.
Unlike Japan, it is calculated as a percentage of sales.
The lower the ratio, the higher the efficiency of the asset, and the higher the ratio, the less effective use of the asset.
Total Assets / Sales = Assets to Sales (%)
Days Sales Outstanding、DSO(Accounts Receivables turnover days)
It is also known as the Collection Period. An indicator to determine the collection efficiency of accounts receivable. The smaller the number of days, the higher the management efficiency, which means early collection.
It is common to use balance sheet figures for trade receivables for numerators, in some cases, averages for the period or two periods may be used.
Accounts Receivable / Credit Sales ×365 = DSO (Days)
Sales to Inventory (Inventory turnover rate)
An indicator that measures the efficiency of inventories. One of the commonly used efficiency indicators in Japan, the higher the ratio, the better the management efficiency of inventories.
However, if it is extremely high compared to other companies in the same industry, there is a possibility that the sales opportunity may be lost, and if it is extremely low, there is a suspicion of defective stock.
Sales / Inventory = Sales to Inventory (Times)