Key Profitability and Efficiency Ratios Overview PPT

This PPT slide, part of the 22-slide Financial Ratios (Comparables) Analysis PowerPoint presentation, presents a detailed overview of various profitability and efficiency ratios essential for financial analysis. It emphasizes the selective application of these ratios based on the specific business context or the required detail level. Each ratio is categorized under a clear structure, providing a formula, an explanation of what the ratio indicates, and the drivers influencing the ratio's performance.

The first ratio discussed is Inventory Turnover, which is calculated by dividing the Cost of Goods Sold by Ending Inventory. This ratio helps assess whether the inventory levels are appropriate, indicating how often inventory items are sold within a year. Key drivers include sales volume, inventory size, and appropriateness.

Next is Days Inventory, also referred to as "stock turns." This ratio, derived by dividing 365 by the Inventory Turnover, measures the average number of days needed to sell the inventory. Understanding this metric is crucial for inventory management and operational efficiency.

Total Asset Turnover follows, illustrating how effectively a company utilizes its assets to generate sales. The formula involves dividing sales by total assets, with insights into capital intensity. A low turnover suggests a capital-intensive business, while a high turnover indicates a less capital-intensive operation.

Days Receivable, or "debtor days," measures the duration a company takes to collect outstanding debts, calculated by dividing Accounts Receivable by Sales. This ratio is vital for assessing credit control effectiveness and cash flow management.

Lastly, Fixed Asset Utilization evaluates how well a company uses its fixed assets to generate sales. The formula involves dividing sales by fixed assets, providing insights into asset efficiency.

Overall, the slide serves as a practical guide for executives looking to enhance financial performance through informed analysis of these key ratios.

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Financial Analysis M&A (Mergers & Acquisitions) Inventory Management Cash Flow Management Accounts Receivable Sales