6 3. Turnover Ratios Inventory Ratios Inventory Turnover Cost of Goods Sold / Inventory How many times entire inventory was sold off or turned over. Higher ratio = More efficient management of inventory. Days’ Sales in Inventory 365 / Inventory Turnover Average days’ sales in inventory. E.g. “Inventory sits 55 days on average before it is sold.” Receivables Ratio Receivables Turnover Sales / Accounts Receivable How fast we can collect on sales. E.g. “Collected its outstanding credit acct. & reloaned the money 5.23 times during the year.” Days’ Sales in Receivables 365 / Receivables Turnover Average Collection Period Total Asset Turnover Total Asset Turnover Sales / Total Asset For every dollar in assets, $___ was generated in sales. Measure of asset use efficiency Not usual for TAT < 1, especially if a firm has a large amount of fixed assets. 4. Profitability Ratios Profit Margin Net Income / Sales How much profits ($) is generated for every dollar in sales. Return on Assets (ROA) Net Income / Total Assets Profit per dollar of assets. Return on Equity (ROE) Net Income / Total Equity Profit per dollar of equity.