{"id":17231,"date":"2022-01-21T17:56:21","date_gmt":"2022-01-21T17:56:21","guid":{"rendered":"https:\/\/www.5paisa.com\/finschool\/?post_type=markets&#038;p=17231"},"modified":"2024-06-13T14:48:12","modified_gmt":"2024-06-13T09:18:12","slug":"activity-ratios","status":"publish","type":"markets","link":"https:\/\/www.5paisa.com\/finschool\/course\/fundamental-analysis-course\/activity-ratios\/","title":{"rendered":"Understanding Activity Ratio in Stock Markets"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"17231\" class=\"elementor elementor-17231\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-23ba90b elementor-section-full_width tab_container elementor-section-height-default elementor-section-height-default\" data-id=\"23ba90b\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column 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data-widget_type=\"shortcode.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<div class=\"elementor-shortcode\">\t<script>\n\t\tjQuery(document).ready(function(){\n\t\t\tjQuery(\"#post_chapters a[href*='\" + location.pathname + \"']\").addClass(\"current\");\n\t\t})\n\t<\/script>\n\t<div class=\"desktop_chapters\"><div id=\"post_chapters\"><div class=\"post_chapters-heading\">Chapters<\/div><ul><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/fundamental-analysis-course\/introduction-to-fundamental-analysis\/\">Introduction to Fundamental Analysis<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/fundamental-analysis-course\/steps-in-fundamental-analysis\/\">Know Steps &#038; Economic Analysis In Fundamental Analysis<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/fundamental-analysis-course\/basic-terms-used-in-fundamental-analysis\/\">Understanding Basic Terms In Fundamental Analysis<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/fundamental-analysis-course\/understanding-financial-statements\/\">Understanding Financial Statements in Stock Market<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/fundamental-analysis-course\/understanding-balance-sheet\/\">Understanding Stock Balance Sheet in Stock Market<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/fundamental-analysis-course\/understanding-income-statements\/\">Understanding Income Statements in Stock Market<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/fundamental-analysis-course\/understanding-financial-ratios-2\/\">Understanding Financial Ratios for Stock Analysis<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/fundamental-analysis-course\/understanding-cash-flows\/\">Understanding Cash Flows<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/fundamental-analysis-course\/liquidity-ratios\/\">Understanding Liquidity Ratio in Stock Market<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/fundamental-analysis-course\/activity-ratios\/\">Understanding Activity Ratio in Stock Markets<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/fundamental-analysis-course\/risk-leverage-ratios\/\">Understanding Risk\/Leverage Ratios In Stock Market<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/fundamental-analysis-course\/profitability-ratios\/\">Understanding Profitability Ratios in Stock Market<\/a><\/li><li><i class=\"fa fa-chevron-right\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/fundamental-analysis-course\/valuation-ratios\/\">Understanding Valuation Ratios in Stock Market<\/a><\/li><\/ul><\/div><\/div><div class=\"chapters_toggle\" title=\"chapters\"><a title=\"chapters\" href=\"#\" id=\"open_chapters\"><span>View Chapters<\/span>&nbsp;&nbsp;&nbsp;<i class=\"fa fa-chevron-right\"><\/i><\/a><a title=\"chapters\" href=\"#\" id=\"close_chapters\" style=\"display:none;\"><span>Hide Chapters<\/span>&nbsp;&nbsp;&nbsp;<i class=\"fa 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>Slides<\/span>                            \n                                                    <\/li>\n                                            <li id=\"videos\" class=\" eael-tab-item-trigger eael-tab-nav-item\" aria-selected=\"false\" data-tab=\"3\" role=\"tab\" tabindex=\"-1\" aria-controls=\"videos-tab\" aria-expanded=\"false\">\n                            \n                                                                <i class=\"far fa-eye\"><\/i>                                                            \n                                                            <span class=\"eael-tab-title title-after-icon\" >Videos<\/span>                            \n                                                    <\/li>\n                                    <\/ul>\n            <\/div>\n            \n            <div class=\"eael-tabs-content\">\n\t\t        \n                    <div id=\"study-tab\" class=\"clearfix eael-tab-content-item active-default\" data-title-link=\"study-tab\">\n\t\t\t\t        <div id=\"sa_slider_shortcode\"><div class='white' style='background:rgb(255, 255, 255); border:solid 0px rgb(255, 255, 255); border-radius:0px; padding:0px 0px 0px 1px;'>\n<div id='text_slider' class='owl-carousel sa_owl_theme owl-pagination-true' data-slider-id='text_slider' style='visibility: visible;visibility:visible;'>\n<div id='text_slider_slide01' class='sa_hover_container' data-hash='Activity-Ratios' style='padding:4.9% 4.7%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2 style=\"text-align: left\"><strong>10. Activity Ratios<\/strong><\/h2>\r\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"aligncenter wp-image-51594 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Activity-Ratios.png\" alt=\"Activity Ratios\" width=\"1056\" height=\"919\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Activity-Ratios.png 1056w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Activity-Ratios-300x261.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Activity-Ratios-1024x891.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Activity-Ratios-768x668.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Activity-Ratios-50x44.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Activity-Ratios-100x87.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Activity-Ratios-150x131.png 150w\" sizes=\"(max-width: 1056px) 100vw, 1056px\" \/><\/p>\r\n<p>&nbsp;<\/p>\r\n<ol>\r\n<li>\r\n<p>Operating Ratios also called &#8216;Activity ratios&#8217; or the &#8216;Management ratios&#8217; indicate the efficiency of the company&#8217;s operational activity. It is another commonly used measurements of liquidity relate to turnover, which can be thought of as the speed with which goods and payments flow into and out of the company or, alternatively, a measurement of how quickly noncash assets are converted into cash. Basically, these ratios look at how efficiently and effectively a company is using its resources to generate sales and increase shareholder value. In general, the better these ratios are, the better it is for shareholders.<\/p>\r\n<p>Snapshot of current assets and current Liabilities of Exide Industries: &#8211;<\/p>\r\n<p><img decoding=\"async\" class=\"size-full wp-image-16345 aligncenter\" src=\"http:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.3.png\" alt=\"\" width=\"629\" height=\"224\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.3.png 629w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.3-300x107.png 300w\" sizes=\"(max-width: 629px) 100vw, 629px\" \/><\/p>\r\n<\/li>\r\n<\/ol>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide02' class='sa_hover_container' data-hash='Inventory-Turnover-Ratio' style='padding:4.9% 4.7%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2 style=\"text-align: left\"><strong>10.1 Inventory Turnover Ratio<\/strong><\/h2>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-51595 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Inventory-Turnover-Ratio.png\" alt=\"Inventory Turnover Ratio\" width=\"984\" height=\"817\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Inventory-Turnover-Ratio.png 984w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Inventory-Turnover-Ratio-300x249.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Inventory-Turnover-Ratio-768x638.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Inventory-Turnover-Ratio-50x42.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Inventory-Turnover-Ratio-100x83.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Inventory-Turnover-Ratio-150x125.png 150w\" sizes=\"(max-width: 984px) 100vw, 984px\" \/><\/p>\r\n<p>&nbsp;<\/p>\r\n<h4><strong>Inventory Turnover Ratio<\/strong><\/h4>\r\n<p>Inventory turnover measures how many times the inventory is depleted and restocked in the process of producing the goods sold by the firm during the period. It compares the average amount of inventory held to the total amount of raw materials consumed in the course of one period (COGS).<\/p>\r\n<p>If a company is selling popular products, then the goods in the inventory gets cleared rapidly, and the company has to replenish the inventory time and again. This is called the &#8216;Inventory turnover&#8217;. For example &#8211; Ribbons &amp; Ballons is known for selling cakes. Since they are popular, they probably knows how many cakes he is likely to sell on any given day. For example, he could sell 500 cakes daily across India. This means he has to maintain an inventory of 500 cakes every day. So, in this case the rate of replenishing the inventory and the inventory turnover is quite high. This may not be true for every business.<\/p>\r\n<p>For instance, think of a 2 wheeler manufacturer. Obviously selling 2 wheeler is not as easy as selling cakes. If the manufacturer produces 100 2W, he may have to wait for sometime before he sells these. Assume, to sell 100 2W(his inventory capacity) he will need 3 months. This means, every 3 months he turns over his inventory. Hence in a year he turns over his inventory 4 times.<\/p>\r\n<p>Formula for Calculating Inventory Turnover:<\/p>\r\n<p style=\"padding-left: 200px\"><strong>Inventory turnover<\/strong> = Cost of goods sold\/ Average inventory<\/p>\r\n<p>Lets take an example to calculate inventory ratio for Exide industries:<\/p>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-16346 aligncenter\" src=\"http:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4.jpg\" alt=\"\" width=\"1070\" height=\"411\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4.jpg 1070w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4-300x115.jpg 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4-1024x393.jpg 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4-768x295.jpg 768w\" sizes=\"(max-width: 1070px) 100vw, 1070px\" \/><\/p>\r\n<p>Cost of materials consumed is Rs.6527.61 Crs and purchases of stock-in-trade is Rs.7.46 Crs. These are important components of Cost of Goods Sold (COGS). Additionally there are some more expenses which are direct in nature and might relate to COGS &#8211; to identify these we looked at &#8216;Other Expenses&#8217; in extract of Note 33.<\/p>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-16299 aligncenter\" src=\"http:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Other-expenses-Inventory-Turnover.png\" alt=\"\" width=\"592\" height=\"322\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Other-expenses-Inventory-Turnover.png 592w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Other-expenses-Inventory-Turnover-300x163.png 300w\" sizes=\"(max-width: 592px) 100vw, 592px\" \/><\/p>\r\n<p>There are two expenses that are directly related to manufacturing i.e. Stores &amp; spares consumed which is at Rs.70.68 Crs and the Power &amp; Fuel cost which is at Rs.286.6 Crs. Hence the<\/p>\r\n<p>Cost of Goods Sold (COGS) = Cost of materials consumed + Purchase of stock in trade + Stores &amp; spares consumed + Power &amp; Fuel<\/p>\r\n<p><strong>COGS<\/strong> = 6527.61+7.46+70.68+286.6 = Rs.6892.35 Crs<\/p>\r\n<p>The next component we need for calculating the inventory turnover is Avg inventory for FY21 &amp; FY20.<\/p>\r\n<p>From the above balance sheet- inventory for FY21 was 2346.19crs &amp; for FY20 was Rs.2192.27crs- avg works to be 2269.23<\/p>\r\n<p>Inventory Turnover Ratio (COGS\/Avg Inventory) = 6829.35\/2269.23= 3x<\/p>\r\n<p>This means that inventory incase of exide industries turns around 3 times a year. To understand how good or bad this number is we should compare this with competitor numbers<\/p>\r\n<h5><strong>Days In Inventory<\/strong><\/h5>\r\n<p>If we assume the inventory turnover data is calculated as a yearly figure, then by dividing it into 365 days per year we can measure how many days&#8217; worth of production demand are stored as inventory (or equivalently, how long an average item remains in inventory). This is called the days in inventory.<\/p>\r\n<p>Days in inventory = 365\/ Inventory turnover<\/p>\r\n<p style=\"padding-left: 120px\">= 365\/3= 121.66 i.e ~122 days<\/p>\r\n<p>This means Exide Industries roughly takes about 122 days to convert its inventory into cash.<\/p>\r\n<p>There are two similar ratios dealing with financial turnover.<\/p><\/div>\n<div id='text_slider_slide03' class='sa_hover_container' data-hash='Payables-Turnover-Ratio' style='padding:4.9% 4.7%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2 style=\"text-align: left\"><strong>10.2 Payables Turnover Ratio<\/strong><\/h2>\r\n<p>&nbsp;<\/p>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-51596 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Payable-Turnover-Ratio.png\" alt=\"Payable Turnover Ratio\" width=\"1080\" height=\"865\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Payable-Turnover-Ratio.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Payable-Turnover-Ratio-300x240.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Payable-Turnover-Ratio-1024x820.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Payable-Turnover-Ratio-768x615.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Payable-Turnover-Ratio-50x40.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Payable-Turnover-Ratio-100x80.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Payable-Turnover-Ratio-150x120.png 150w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<h5><strong>Payables Turnover Ratio- <\/strong><\/h5>\r\n<p><strong>This measures<\/strong> how long the company is taking to pay off the <strong>accounts payable (in fractions of a year), with days in accounts payable the corresponding number of days:<\/strong><\/p>\r\n<p style=\"padding-left: 240px\"><strong>Payables turnover<\/strong> = Cost of goods sold\/ Average accounts payable<\/p>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-16347 aligncenter\" src=\"http:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4-1.jpg\" alt=\"\" width=\"1080\" height=\"478\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4-1.jpg 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4-1-300x133.jpg 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4-1-1024x453.jpg 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4-1-768x340.jpg 768w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>Accounts payable for FY21 is Rs 1641.61crs (132.65+1508.96) &amp; FY20 is Rs. 1030.32 (71.36+958.96) avg of this comes at Rs.1335.96crs<\/p>\r\n<p>So Payables Turnover is = 6829.35\/1335.96= 5.11x<\/p>\r\n<p>Days in accounts payable = 365\/ Payables turnover= 365\/5.11= 71.4 days<\/p>\r\n<p>This means Exide Industries roughly takes about 71 days to pay off its money to their suppliers. This essentially is the credit period that Exide industries enjoys from its suppliers<\/p><\/div>\n<div id='text_slider_slide04' class='sa_hover_container' data-hash='Receivables-Turnover-Ratio' style='padding:4.9% 4.7%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2 style=\"text-align: left\"><strong>10.3 Receivables Turnover Ratio<\/strong><\/h2>\r\n<p>&nbsp;<\/p>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-51597 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Receivable-Turnover-Ratio.png\" alt=\"Receivable Turnover Ratio\" width=\"933\" height=\"937\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Receivable-Turnover-Ratio.png 933w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Receivable-Turnover-Ratio-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Receivable-Turnover-Ratio-150x151.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Receivable-Turnover-Ratio-768x771.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Receivable-Turnover-Ratio-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Receivable-Turnover-Ratio-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Receivable-Turnover-Ratio-96x96.png 96w\" sizes=\"(max-width: 933px) 100vw, 933px\" \/><\/p>\r\n<h5><strong>Receivables Turnover Ratio-<\/strong><\/h5>\r\n<p>Receivables turnover measures how long customers are taking to pay the company in fractional years and days in accounts receivable the corresponding number of days. Naturally a high number indicates that the company collects cash more frequently<\/p>\r\n<p style=\"padding-left: 200px\"><strong>Receivables turnover<\/strong> = Net sales\/ Average receivables<\/p>\r\n<p>From balance sheet-<\/p>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-16348 aligncenter\" src=\"http:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4-2.png\" alt=\"\" width=\"629\" height=\"224\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4-2.png 629w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4-2-300x107.png 300w\" sizes=\"(max-width: 629px) 100vw, 629px\" \/><\/p>\r\n<p>Trade Receivables for FY21 is Rs 887.37crs &amp; FY20 is Rs. 815.30 avg of this comes at Rs.851.35 crs<\/p>\r\n<p>Net sales for FY21 is 10040.84crs<\/p>\r\n<p><strong>Receivables Turnover Ratio = 10040.84\/851.35=11.8 times<\/strong><\/p>\r\n<p>This means Exide industries receives cash from its customers roughly about 11.8 times a year<\/p>\r\n<p><strong>Days in accounts receivable = 365\/ Receivables turnover<\/strong><\/p>\r\n<p style=\"padding-left: 240px\"><strong>= 365\/11.8<\/strong><\/p>\r\n<p style=\"padding-left: 240px\"><strong>= 30.93 days<\/strong><\/p>\r\n<p>This means Exide Industry takes about 30 days from the time it sells its products to the time it can collect its money against the sale.<\/p><\/div>\n<div id='text_slider_slide05' class='sa_hover_container' data-hash='Fixed-Asset-Turnover-Ratio' style='padding:4.9% 4.7%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2 style=\"text-align: left\"><strong>10.4 Fixed Asset Turnover Ratio<\/strong><\/h2>\r\n<p>&nbsp;<\/p>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-51598 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Fixed-Asset-Turnover-Ratio.png\" alt=\"Fixed Asset Turnover Ratio\" width=\"1008\" height=\"850\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Fixed-Asset-Turnover-Ratio.png 1008w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Fixed-Asset-Turnover-Ratio-300x253.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Fixed-Asset-Turnover-Ratio-768x648.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Fixed-Asset-Turnover-Ratio-50x42.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Fixed-Asset-Turnover-Ratio-100x84.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Fixed-Asset-Turnover-Ratio-150x126.png 150w\" sizes=\"(max-width: 1008px) 100vw, 1008px\" \/><\/p>\r\n<h3><strong>Fixed Asset Turnover Ratio<\/strong><\/h3>\r\n<p>This ratio is a rough measure of the productivity of a company&#8217;s fixed assets (property, plant and equipment or PP&amp;E) with respect to generating sales. For most companies, their investment in fixed assets represents the single largest component of their total assets. This annual turnover ratio is designed to reflect a company&#8217;s efficiency in managing these significant assets. Simply put, the higher the yearly turnover rate, the better it is.<\/p>\r\n<p style=\"padding-left: 200px\"><strong>Fixed Assets Turnover = <\/strong>Net Sales \/ Total Average Asset<\/p>\r\n<p>For Exide industry- total average asset would include fixed assets &amp; the capital work in progress.<\/p>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-16349 aligncenter\" src=\"http:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4-3.png\" alt=\"\" width=\"627\" height=\"243\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4-3.png 627w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/8.4-3-300x116.png 300w\" sizes=\"(max-width: 627px) 100vw, 627px\" \/><\/p>\r\n<p>For FY21- total fixed assets= 2601.79+200.75+33.77= Rs.2836.31crs<\/p>\r\n<p>FY20- total fixed assets= 2302.92+296.88+34.23= Rs.2634crs<\/p>\r\n<p>Avg total fixed asset = Rs.2735.15crs<\/p>\r\n<p><strong>Fixed Asset Turnover = 10040.85\/2735.15= 3.67x<\/strong><\/p><\/div>\n<div id='text_slider_slide06' class='sa_hover_container' data-hash='Total-Asset-Turnover-Ratio' style='padding:4.9% 4.7%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2 style=\"text-align: left\"><strong>10.5 Total Asset Turnover Ratio<\/strong><\/h2>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-51599 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Total-Asset-Turnover-Ratio.png\" alt=\"Total-Asset-Turnover-Ratio\" width=\"972\" height=\"864\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Total-Asset-Turnover-Ratio.png 972w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Total-Asset-Turnover-Ratio-300x267.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Total-Asset-Turnover-Ratio-768x683.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Total-Asset-Turnover-Ratio-50x44.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Total-Asset-Turnover-Ratio-100x89.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Total-Asset-Turnover-Ratio-150x133.png 150w\" sizes=\"(max-width: 972px) 100vw, 972px\" \/><\/p>\r\n<h5><strong>Total Asset Turnover Ratio<\/strong><\/h5>\r\n<p>The total asset turnover (TAT) ratio measures the degree to which a firm generates sales with its total asset base. Here the assets include both the fixed assets as well as current assets. A higher total asset turnover ratio compared to its historical data and competitor data means the company is using its assets well to generate more sales<\/p>\r\n<p style=\"padding-left: 160px\"><strong>Total Asset Turnover = Net Sales \/ Average Total Assets<\/strong><\/p>\r\n<p>For Exide Industries- total assets for FY21 is Rs.9628.77 &amp; FY20 is Rs.8242.08- avg comes to 8935.42<\/p>\r\n<p>Net Sales is Rs.10040.85crs<\/p>\r\n<p><strong>Total Asset Turnover = 10040.85\/8935.42<\/strong><\/p>\r\n<p style=\"padding-left: 160px\"><strong>= 1.12x<\/strong><\/p><\/div>\n<div id='text_slider_slide07' class='sa_hover_container' data-hash='Working-Capital-Turnover-Ratio' style='padding:4.9% 4.7%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; '><h2 style=\"text-align: left\"><strong>10.6 Working Capital Turnover Ratio<\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-51600 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Working-Capital-Turnover-Ratio.png\" alt=\"Working-Capital-Turnover-Ratio\" width=\"915\" height=\"746\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Working-Capital-Turnover-Ratio.png 915w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Working-Capital-Turnover-Ratio-300x245.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Working-Capital-Turnover-Ratio-768x626.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Working-Capital-Turnover-Ratio-50x41.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Working-Capital-Turnover-Ratio-100x82.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Working-Capital-Turnover-Ratio-150x122.png 150w\" sizes=\"(max-width: 915px) 100vw, 915px\" \/><\/p>\r\n<p>&nbsp;<\/p>\r\n<h5><strong>Working Capital Turnover Ratio<\/strong><\/h5>\r\n<p>Working capital, which measures the short-term liquidity of the company and is equal to the difference between the current assets and current liabilities. A company must maintain an adequate buffer of working capital to guarantee that current assets are enough to cover short-term liabilities and avoid an interruption in operations due to an inability to make payments on its obligations. This underscores the significance of &#8220;current,&#8221; as it applies both to assets (they should be liquid and readily convertible into cash) and liabilities (anything that is coming due in the near term, including the current portion of long-term debt).<\/p>\r\n<p style=\"padding-left: 160px\"><strong>Working Capital<\/strong> = Current Assets &#8211; Current Liabilities<\/p>\r\n<p>If the working capital is a positive number, it implies that the company has working capital surplus and can easily manage its day to day operations. However if the working capital is negative, it means the company has a working capital deficit. Usually if the company has a working capital deficit, they seek a working capital loan from their bankers.<\/p>\r\n<p><strong>The working capital turnover ratio<\/strong> is also referred to as Net sales to working capital. The working capital turnover indicates how much revenue the company generates for every unit of working capital. Suppose the ratio is 8, then it indicates that the company generates Rs.8 in revenue for every Rs.1 of working capital. Higher the number, better it is- as it suggests that the company is generating better sales in comparison with the money it uses to fund the sales.<\/p>\r\n<p style=\"padding-left: 240px\"><strong>Working Capital Turnover<\/strong>= Net Sales\/ Avg Working Capital<\/p>\r\n<p>Lets calculate this for Exide Industries:<\/p>\r\n<p>Working Capital for FY21= Current Assets- Current Liabilities<\/p>\r\n<p style=\"padding-left: 160px\">= 4394.89crs- 2314.85crs<\/p>\r\n<p style=\"padding-left: 160px\">= Rs.2080.04crs<\/p>\r\n<p>Working Capital for FY20= Current Assets- Current Liabilities<\/p>\r\n<p style=\"padding-left: 160px\">= 3339.50crs- 1744.25crs<\/p>\r\n<p style=\"padding-left: 160px\">= Rs.1595.25crs<\/p>\r\n<p style=\"padding-left: 160px\">Avg. Working Capital [(2080.04+1595.25)\/2] = Rs.1837.62crs<\/p>\r\n<p style=\"padding-left: 160px\">Working Capital Turnover (Net Sales\/Avg. Working Capital) = 10040.84\/1837.5= 5.46x<\/p>\r\n<p>The number indicates that for every Rs.1 of working capital, the company is generating Rs.5.46 in terms of revenue.<\/p><\/div>\n<\/div>\n<\/div>\n<script type='text\/javascript'>\n\tjQuery(document).ready(function() {\n\t\tjQuery('#text_slider').owlCarousel({\n\t\t\titems : 1,\n\t\t\tsmartSpeed : 400,\n\t\t\tautoplay : false,\n\t\t\tautoplayHoverPause : false,\n\t\t\tsmartSpeed : 400,\n\t\t\tfluidSpeed : 400,\n\t\t\tautoplaySpeed : 400,\n\t\t\tnavSpeed : 400,\n\t\t\tdotsSpeed : 400,\n\t\t\tdotsEach : 1,\n\t\t\tloop : false,\n\t\t\tnav : true,\n\t\t\tnavText : ['Previous','Next'],\n\t\t\tdots : true,\n\t\t\tresponsiveRefreshRate : 200,\n\t\t\tslideBy : 1,\n\t\t\tmergeFit : true,\n\t\t\tautoHeight : true,\n\t\t\tmouseDrag : false,\n\t\t\ttouchDrag : true\n\t\t});\n\t\tjQuery('#text_slider').css('visibility', 'visible');\n\t\tvar owl_goto = 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Activity Ratios Operating Ratios also called &#8216;Activity ratios&#8217; or the &#8216;Management ratios&#8217; indicate the efficiency of the company&#8217;s operational activity. It is another commonly used measurements of liquidity relate to turnover, which can be thought of as the speed with which goods and payments flow into and out of the company &#8230; <a title=\"Understanding Activity Ratio in Stock Markets\" class=\"read-more\" href=\"https:\/\/www.5paisa.com\/finschool\/course\/fundamental-analysis-course\/activity-ratios\/\" aria-label=\"Read more about Understanding Activity Ratio in Stock Markets\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"parent":15096,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[],"class_list":["post-17231","markets","type-markets","status-publish","format-standard","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/17231","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets"}],"about":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/types\/markets"}],"author":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/comments?post=17231"}],"version-history":[{"count":16,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/17231\/revisions"}],"predecessor-version":[{"id":55661,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/17231\/revisions\/55661"}],"up":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/15096"}],"wp:attachment":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/media?parent=17231"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/categories?post=17231"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}