Do you know the information value of operating, liquidity, profitability and leverage ratios?
The most important indicators on a business financial dashboard are operating ratios, also known as asset management ratios. The ability to turn fixed assets, raw materials and inventory into cash is reflected in various indicators including the inventory turnover, sales-to-assets and accounts receivable ratios. These are top line indicators that reveal the general operating strength of your company.
These ratios show how much revenue you generate relative to your assets, how quickly you convert assets into sales and how soon those sales are turned into cash.
Sales to Assets: An indication of how much sales volume is generated by each dollar of assets used to produce sales. Generally a higher ratio compared to other companies or time periods means the company is operating with a leaner and more efficient level of assets.
Accounts Receivable Aging: Simply a reflection of how quickly the company collects payment from its customers after a sale. The goal should be to move this toward zero days outstanding which would indicate immediate cash payments.
Pay attention to the operating ratios for they are the beating heart of your company.
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