Inventory turnover ratio: This ratio measures how often a company’s inventory is sold and replaced over a period. A high inventory turnover ratio indicates efficient inventory management and strong sales, while a low ratio may suggest overstocking or weak sales.
Accounts receivable turnover ratio: This ratio evaluates how effectively a company collects its receivables. A higher accounts receivable turnover ratio signifies efficient credit policies and collection processes, whereas a lower ratio may indicate issues with credit policies or customer payment delays.
Accounts payable turnover ratio: This ratio assesses how quickly a company pays off its suppliers. A high accounts payable turnover ratio suggests prompt payments, which can enhance supplier relationships. On the other hand, a low ratio might indicate cash flow problems or extended payment terms.
Asset turnover ratio: The asset turnover ratio measures a company’s ability to generate sales from its assets. A higher ratio reflects the efficient use of assets to produce revenue, whereas a lower ratio may point to underutilized assets or operational inefficiencies.
Fixed asset turnover ratio: This ratio focuses on how well a company uses its fixed assets, like property and equipment, to generate sales. A high fixed asset turnover ratio indicates effective utilization of fixed assets, while a low ratio could suggest underperformance or excessive investment in fixed assets.
Working capital turnover ratio: This ratio examines how efficiently a company uses its working capital—meaning its total assets minus its liabilities—to support sales. A higher working capital turnover ratio demonstrates effective management of short-term assets and liabilities; a lower ratio may highlight inefficiencies in managing working capital.