Let's imagine that businesses are like supercool vehicles. Some are speedy race cars, others are big buses, and some are slow snail-mobiles. Just like we check the speed, fuel efficiency, and battery life of a vehicle, businesses also have their own dashboard dials. These dials are called efficiency ratios. They tell us how well a company is driving its finances! 🚗💨

Efficiency ratios give you a peek at how companies use their assets and liabilities.

• It's like checking if you're using all the gas in your tank efficiently or just letting it leak. No one likes leaks, right? 🙅‍♀️

Examples include

• Stock turnover ratio
• Debtor days
• Creditor days
• Gearing ratios

Think of a fresh apple cart at a market.

• If the seller sells all apples and refills his cart quickly, that's high stock turnover. People love his apples! 🍎
• If he takes ages to sell those apples, that's low stock turnover. Maybe people want oranges? 🍊

This ratio measures

• How many times the seller refills his apple cart in a given period.
• How many days it takes for him to sell all those yummy apples.

This is like lending a video game to a friend and counting how many days it takes for them to return it (or in our case, the money they owe for borrowing it).

In biz terms, it's the average number of days it takes for a company to collect money from people who owe them.