# Efficiency (Activity) Ratios

Efficiency ratios are used by management to help improve the efficiency of the company operations and profitability. Some of the most commonly used Efficiency ratios - Assets turnover ratio, Accounts receivable turnover ratio and Inventory turnover ratio. Select a ratio calculator and key in the required values to get the desired result:

1. ##### Asset Turnover Ratio Calculator
Asset turnover ratio is used to measures the value of a company's sales or revenues generated relative to the value of its assets during an accounting period. Try now…

How to calculate?
Formula: Asset Turnover Ratio = Net Sales/Average Total Assets
The values are commonly stated against total assets in the balance and net sales in the income statement.
Note:
Average Total Assets = (Beginning Total Assets + Ending Total Assets)/2.

Net Sales:
Total sales less returns and bad debts.

Total Assets:
A balance sheet component - Total assets are the sum of all current and noncurrent assets that a company owns.

Average Total Assets:
An average of total assets value at the beginning of the year and total assets value at the end of the year.

Example:
Asset turnover ratio for a company with a net income of \$500,000 and average total assets of \$775,000 is 0.65:1. It means that for every dollar in assets, a company generates \$0.65 in sales.
2. ##### Accounts Receivable Turnover Ratio Calculator
Accounts Receivable Turnover ratio is used to measure, how efficient the company is managing its receivable - average time taken to collect the money from its customers during an accounting period. Try now…

How to calculate?
Formula: Accounts Receivable (AR) Turnover Ratio = Net Sales/Average Accounts Receivable
The values are commonly stated against accounts receivable in the balance and net sales in income statement.
Note:
Average Accounts Receivable (AR) = (Begin Accounts Receivable + Ending Accounts Receivable)/2

Net Sales:
Total sales less returns and bad debts.

Account Receivable:
Account receivable is balance sheet component - net value of credit sales during a accounting period.

Average Accounts Receivable:
An average value of accounts receivable value at the beginning of the year and accounts receivable value at the end of the year.

Example:
Account receivable turnover ratio for a company with a net sales income of \$360,000 and average accounts receivable of \$30,000 is 12 times. It means that an average customer took 30 days to pay the company's credit sales. It is an accounting ratio that helps a company to determine the average time it took to collect its money (AR) by dividing the Accounts Receivable Turnover Ratio/365days.
3. ##### Inventory Turnover Ratio Calculator
Inventory turnover ratio is a key measure for evaluating, how efficient the company is managing its inventory and generating sales - how many times the entire inventory of a company has been sold during an accounting period. Try now…

How to calculate?
Formula: Inventory Turnover Ratio = Cost of Goods Sold (COGS)/Average Inventory
The values are commonly stated against inventory in the balance sheet and net sales in the income statement.
Note:
Average Inventory = (Beginning Inventory + Ending Inventory)/2

Cost of Goods Sold (COGS):
Cost of goods sold (COGS) is total cost to produce goods and services such as cost of materials, wages and other expenses related to producing a goods and service.

Inventory:
Inventory is the finished goods that can be sold immediately.

Average Inventory:
An average of Inventory value at the beginning of the year and inventory value at the end of the year.

Example:
A company with a cost of goods (COGS) of \$225,000, beginning inventory of \$20,000 and ending inventory of \$25,000 will have inventory turnover ratio of 10 times. It means that the company sold its entire inventory within 36.5 days period. It is an accounting ratio that helps a company to determine how much of its money tied up in inventory.