🕵️‍♂️ What Are They?

Efficiency ratios check how smartly a business uses its assets and liabilities. It's like checking how well you manage your pocket money!

• The What? How quickly a company's stock is sold and restocked.
• How? Two ways
  • Count the number of times stock is sold in a year.
    • Formula: Cost of Sales / Average Stock.
  • Measure the number of days to sell stock.
    • Formula: (Average Stock / Cost of Sales) x 365.

Real-World Example: Imagine a toy store sells all its toys (stock) 4 times in a year or roughly every 91 days. That’s FAST! 🚀

Remember! 🧠 A high stock turnover ratio = Faster sales = More 💰 (unless selling at low profits or losses). But, the best ratio varies per industry. For instance, luxury car makers may restock slower than a local grocery store.

Strategies to Boost It

• Clear out old or unpopular items.
• Offer fewer but better-selling items.
• Use just-in-time (JIT) production: Only order materials when needed. (But be wary of delays!)

• The What? The time a company takes to collect its money from credit sales.
• How? Formula: (Debtors / Total Sales Revenue) x 365.

Real-World Example: If a bookstore takes an average of 46 days to collect its money after selling books on credit, those are its debtor days.

Strategies to Collect Faster

• Offer discounts for early payments.
• Fine late payers (Uh-oh! Risky move though! 🙈)
• No more deals till overdue debtors pay.
• Legal actions (Last resort! Could damage reputation.)