{"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\u0026#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":"\u003cdiv data-elementor-type=\u0022wp-post\u0022 data-elementor-id=\u002217231\u0022 class=\u0022elementor elementor-17231\u0022\u003e\u003csection class=\u0022elementor-section elementor-top-section elementor-element elementor-element-23ba90b elementor-section-full_width tab_container elementor-section-height-default elementor-section-height-default\u0022 data-id=\u002223ba90b\u0022 data-element_type=\u0022section\u0022\u003e\u003cdiv class=\u0022elementor-container 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Ratios for Stock Analysis\u003c/a\u003e\u003c/li\u003e\u003cli\u003e\u003ci class=\u0022fa fa-chevron-right\u0022\u003e\u003c/i\u003e\u0026nbsp;\u0026nbsp;\u0026nbsp;\u003ca href=\u0022https://www.5paisa.com/gujarati/finschool/course/fundamental-analysis-course/understanding-cash-flows/\u0022\u003eUnderstanding Cash Flows\u003c/a\u003e\u003c/li\u003e\u003cli\u003e\u003ci class=\u0022fa fa-chevron-right\u0022\u003e\u003c/i\u003e\u0026nbsp;\u0026nbsp;\u0026nbsp;\u003ca href=\u0022https://www.5paisa.com/gujarati/finschool/course/fundamental-analysis-course/liquidity-ratios/\u0022\u003eUnderstanding Liquidity Ratio in Stock Market\u003c/a\u003e\u003c/li\u003e\u003cli\u003e\u003ci class=\u0022fa fa-chevron-right\u0022\u003e\u003c/i\u003e\u0026nbsp;\u0026nbsp;\u0026nbsp;\u003ca href=\u0022https://www.5paisa.com/gujarati/finschool/course/fundamental-analysis-course/activity-ratios/\u0022\u003eUnderstanding Activity Ratio in Stock Markets\u003c/a\u003e\u003c/li\u003e\u003cli\u003e\u003ci 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margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; \u0027\u003e\u003ch2 style=\u0022text-align: left\u0022\u003e\u003cstrong\u003e10. Activity Ratios\u003c/strong\u003e\u003c/h2\u003e\u003cp\u003e\u003cimg fetchpriority=\u0022high\u0022 decoding=\u0022async\u0022 class=\u0022aligncenter wp-image-51594 size-full\u0022 src=\u0022https://www.5paisa.com/gujarati/finschool/wp-content/uploads/2022/01/Activity-Ratios.png\u0022 alt=\u0022Activity Ratios\u0022 width=\u00221056\u0022 height=\u0022919\u0022 srcset=\u0022https://www.5paisa.com/gujarati/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\u0022 sizes=\u0022(max-width: 1056px) 100vw, 1056px\u0022 /\u003e\u003c/p\u003e\u003cp\u003e\u0026nbsp;\u003c/p\u003e\u003col\u003e\u003cli\u003e\u003cp\u003eOperating Ratios also called \u0026#8216;Activity ratios\u0026#8217; or the \u0026#8216;Management ratios\u0026#8217; indicate the efficiency of the company\u0026#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.\u003c/p\u003e\u003cp\u003eSnapshot of current assets and current Liabilities of Exide Industries: \u0026#8211;\u003c/p\u003e\u003cp\u003e\u003cimg decoding=\u0022async\u0022 class=\u0022size-full wp-image-16345 aligncenter\u0022 src=\u0022https://www.5paisa.com/gujarati/finschool/wp-content/uploads/2022/01/8.3.png\u0022 alt=\u0022\u0022 width=\u0022629\u0022 height=\u0022224\u0022 srcset=\u0022https://www.5paisa.com/gujarati/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\u0022 sizes=\u0022(max-width: 629px) 100vw, 629px\u0022 /\u003e\u003c/p\u003e\u003c/li\u003e\u003c/ol\u003e\u003cp\u003e\u0026nbsp;\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\u0027text_slider_slide02\u0027 class=\u0027sa_hover_container\u0027 data-hash=\u0027Inventory-Turnover-Ratio\u0027 style=\u0027padding:4.9% 4.7%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; \u0027\u003e\u003ch2 style=\u0022text-align: left\u0022\u003e\u003cstrong\u003e10.1 Inventory Turnover Ratio\u003c/strong\u003e\u003c/h2\u003e\u003cp\u003e\u003cimg decoding=\u0022async\u0022 class=\u0022aligncenter wp-image-51595 size-full\u0022 src=\u0022https://www.5paisa.com/gujarati/finschool/wp-content/uploads/2022/01/Inventory-Turnover-Ratio.png\u0022 alt=\u0022Inventory Turnover Ratio\u0022 width=\u0022984\u0022 height=\u0022817\u0022 srcset=\u0022https://www.5paisa.com/gujarati/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\u0022 sizes=\u0022(max-width: 984px) 100vw, 984px\u0022 /\u003e\u003c/p\u003e\u003cp\u003e\u0026nbsp;\u003c/p\u003e\u003ch4\u003e\u003cstrong\u003eInventory Turnover Ratio\u003c/strong\u003e\u003c/h4\u003e\u003cp\u003eInventory 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).\u003c/p\u003e\u003cp\u003eIf 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 \u0026#8216;Inventory turnover\u0026#8217;. For example \u0026#8211; Ribbons \u0026amp; 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.\u003c/p\u003e\u003cp\u003eFor 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.\u003c/p\u003e\u003cp\u003eFormula for Calculating Inventory Turnover:\u003c/p\u003e\u003cp style=\u0022padding-left: 200px\u0022\u003e\u003cstrong\u003eInventory turnover\u003c/strong\u003e = Cost of goods sold/ Average inventory\u003c/p\u003e\u003cp\u003eLets take an example to calculate inventory ratio for Exide industries:\u003c/p\u003e\u003cp\u003e\u003cimg loading=\u0022lazy\u0022 decoding=\u0022async\u0022 class=\u0022size-full wp-image-16346 aligncenter\u0022 src=\u0022https://www.5paisa.com/gujarati/finschool/wp-content/uploads/2022/01/8.4.jpg\u0022 alt=\u0022\u0022 width=\u00221070\u0022 height=\u0022411\u0022 srcset=\u0022https://www.5paisa.com/gujarati/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\u0022 sizes=\u0022(max-width: 1070px) 100vw, 1070px\u0022 /\u003e\u003c/p\u003e\u003cp\u003eCost 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 \u0026#8211; to identify these we looked at \u0026#8216;Other Expenses\u0026#8217; in extract of Note 33.\u003c/p\u003e\u003cp\u003e\u003cimg loading=\u0022lazy\u0022 decoding=\u0022async\u0022 class=\u0022size-full wp-image-16299 aligncenter\u0022 src=\u0022https://www.5paisa.com/gujarati/finschool/wp-content/uploads/2022/01/Other-expenses-Inventory-Turnover.png\u0022 alt=\u0022\u0022 width=\u0022592\u0022 height=\u0022322\u0022 srcset=\u0022https://www.5paisa.com/gujarati/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\u0022 sizes=\u0022(max-width: 592px) 100vw, 592px\u0022 /\u003e\u003c/p\u003e\u003cp\u003eThere are two expenses that are directly related to manufacturing i.e. Stores \u0026amp; spares consumed which is at Rs.70.68 Crs and the Power \u0026amp; Fuel cost which is at Rs.286.6 Crs. Hence the\u003c/p\u003e\u003cp\u003eCost of Goods Sold (COGS) = Cost of materials consumed + Purchase of stock in trade + Stores \u0026amp; spares consumed + Power \u0026amp; Fuel\u003c/p\u003e\u003cp\u003e\u003cstrong\u003eCOGS\u003c/strong\u003e = 6527.61+7.46+70.68+286.6 = Rs.6892.35 Crs\u003c/p\u003e\u003cp\u003eThe next component we need for calculating the inventory turnover is Avg inventory for FY21 \u0026amp; FY20.\u003c/p\u003e\u003cp\u003eFrom the above balance sheet- inventory for FY21 was 2346.19crs \u0026amp; for FY20 was Rs.2192.27crs- avg works to be 2269.23\u003c/p\u003e\u003cp\u003eInventory Turnover Ratio (COGS/Avg Inventory) = 6829.35/2269.23= 3x\u003c/p\u003e\u003cp\u003eThis 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\u003c/p\u003e\u003ch5\u003e\u003cstrong\u003eDays In Inventory\u003c/strong\u003e\u003c/h5\u003e\u003cp\u003eIf 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\u0026#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.\u003c/p\u003e\u003cp\u003eDays in inventory = 365/ Inventory turnover\u003c/p\u003e\u003cp style=\u0022padding-left: 120px\u0022\u003e= 365/3= 121.66 i.e ~122 days\u003c/p\u003e\u003cp\u003eThis means Exide Industries roughly takes about 122 days to convert its inventory into cash.\u003c/p\u003e\u003cp\u003eThere are two similar ratios dealing with financial turnover.\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\u0027text_slider_slide03\u0027 class=\u0027sa_hover_container\u0027 data-hash=\u0027Payables-Turnover-Ratio\u0027 style=\u0027padding:4.9% 4.7%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; \u0027\u003e\u003ch2 style=\u0022text-align: left\u0022\u003e\u003cstrong\u003e10.2 Payables Turnover Ratio\u003c/strong\u003e\u003c/h2\u003e\u003cp\u003e\u0026nbsp;\u003c/p\u003e\u003cp\u003e\u003cimg loading=\u0022lazy\u0022 decoding=\u0022async\u0022 class=\u0022aligncenter wp-image-51596 size-full\u0022 src=\u0022https://www.5paisa.com/gujarati/finschool/wp-content/uploads/2022/01/Payable-Turnover-Ratio.png\u0022 alt=\u0022Payable Turnover Ratio\u0022 width=\u00221080\u0022 height=\u0022865\u0022 srcset=\u0022https://www.5paisa.com/gujarati/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\u0022 sizes=\u0022(max-width: 1080px) 100vw, 1080px\u0022 /\u003e\u003c/p\u003e\u003ch5\u003e\u003cstrong\u003ePayables Turnover Ratio- \u003c/strong\u003e\u003c/h5\u003e\u003cp\u003e\u003cstrong\u003eThis measures\u003c/strong\u003e how long the company is taking to pay off the \u003cstrong\u003eaccounts payable (in fractions of a year), with days in accounts payable the corresponding number of days:\u003c/strong\u003e\u003c/p\u003e\u003cp style=\u0022padding-left: 240px\u0022\u003e\u003cstrong\u003ePayables turnover\u003c/strong\u003e = Cost of goods sold/ Average accounts payable\u003c/p\u003e\u003cp\u003e\u003cimg loading=\u0022lazy\u0022 decoding=\u0022async\u0022 class=\u0022size-full wp-image-16347 aligncenter\u0022 src=\u0022https://www.5paisa.com/gujarati/finschool/wp-content/uploads/2022/01/8.4-1.jpg\u0022 alt=\u0022\u0022 width=\u00221080\u0022 height=\u0022478\u0022 srcset=\u0022https://www.5paisa.com/gujarati/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\u0022 sizes=\u0022(max-width: 1080px) 100vw, 1080px\u0022 /\u003e\u003c/p\u003e\u003cp\u003eAccounts payable for FY21 is Rs 1641.61crs (132.65+1508.96) \u0026amp; FY20 is Rs. 1030.32 (71.36+958.96) avg of this comes at Rs.1335.96crs\u003c/p\u003e\u003cp\u003eSo Payables Turnover is = 6829.35/1335.96= 5.11x\u003c/p\u003e\u003cp\u003eDays in accounts payable = 365/ Payables turnover= 365/5.11= 71.4 days\u003c/p\u003e\u003cp\u003eThis 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\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\u0027text_slider_slide04\u0027 class=\u0027sa_hover_container\u0027 data-hash=\u0027Receivables-Turnover-Ratio\u0027 style=\u0027padding:4.9% 4.7%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; \u0027\u003e\u003ch2 style=\u0022text-align: left\u0022\u003e\u003cstrong\u003e10.3 Receivables Turnover Ratio\u003c/strong\u003e\u003c/h2\u003e\u003cp\u003e\u0026nbsp;\u003c/p\u003e\u003cp\u003e\u003cimg loading=\u0022lazy\u0022 decoding=\u0022async\u0022 class=\u0022aligncenter wp-image-51597 size-full\u0022 src=\u0022https://www.5paisa.com/gujarati/finschool/wp-content/uploads/2022/01/Receivable-Turnover-Ratio.png\u0022 alt=\u0022Receivable Turnover Ratio\u0022 width=\u0022933\u0022 height=\u0022937\u0022 srcset=\u0022https://www.5paisa.com/gujarati/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\u0022 sizes=\u0022(max-width: 933px) 100vw, 933px\u0022 /\u003e\u003c/p\u003e\u003ch5\u003e\u003cstrong\u003eReceivables Turnover Ratio-\u003c/strong\u003e\u003c/h5\u003e\u003cp\u003eReceivables 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\u003c/p\u003e\u003cp style=\u0022padding-left: 200px\u0022\u003e\u003cstrong\u003eReceivables turnover\u003c/strong\u003e = Net sales/ Average receivables\u003c/p\u003e\u003cp\u003eFrom balance sheet-\u003c/p\u003e\u003cp\u003e\u003cimg loading=\u0022lazy\u0022 decoding=\u0022async\u0022 class=\u0022size-full wp-image-16348 aligncenter\u0022 src=\u0022https://www.5paisa.com/gujarati/finschool/wp-content/uploads/2022/01/8.4-2.png\u0022 alt=\u0022\u0022 width=\u0022629\u0022 height=\u0022224\u0022 srcset=\u0022https://www.5paisa.com/gujarati/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\u0022 sizes=\u0022(max-width: 629px) 100vw, 629px\u0022 /\u003e\u003c/p\u003e\u003cp\u003eTrade Receivables for FY21 is Rs 887.37crs \u0026amp; FY20 is Rs. 815.30 avg of this comes at Rs.851.35 crs\u003c/p\u003e\u003cp\u003eNet sales for FY21 is 10040.84crs\u003c/p\u003e\u003cp\u003e\u003cstrong\u003eReceivables Turnover Ratio = 10040.84/851.35=11.8 times\u003c/strong\u003e\u003c/p\u003e\u003cp\u003eThis means Exide industries receives cash from its customers roughly about 11.8 times a year\u003c/p\u003e\u003cp\u003e\u003cstrong\u003eDays in accounts receivable = 365/ Receivables turnover\u003c/strong\u003e\u003c/p\u003e\u003cp style=\u0022padding-left: 240px\u0022\u003e\u003cstrong\u003e= 365/11.8\u003c/strong\u003e\u003c/p\u003e\u003cp style=\u0022padding-left: 240px\u0022\u003e\u003cstrong\u003e= 30.93 days\u003c/strong\u003e\u003c/p\u003e\u003cp\u003eThis 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.\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\u0027text_slider_slide05\u0027 class=\u0027sa_hover_container\u0027 data-hash=\u0027Fixed-Asset-Turnover-Ratio\u0027 style=\u0027padding:4.9% 4.7%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; \u0027\u003e\u003ch2 style=\u0022text-align: left\u0022\u003e\u003cstrong\u003e10.4 Fixed Asset Turnover Ratio\u003c/strong\u003e\u003c/h2\u003e\u003cp\u003e\u0026nbsp;\u003c/p\u003e\u003cp\u003e\u003cimg loading=\u0022lazy\u0022 decoding=\u0022async\u0022 class=\u0022aligncenter wp-image-51598 size-full\u0022 src=\u0022https://www.5paisa.com/gujarati/finschool/wp-content/uploads/2022/01/Fixed-Asset-Turnover-Ratio.png\u0022 alt=\u0022Fixed Asset Turnover Ratio\u0022 width=\u00221008\u0022 height=\u0022850\u0022 srcset=\u0022https://www.5paisa.com/gujarati/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\u0022 sizes=\u0022(max-width: 1008px) 100vw, 1008px\u0022 /\u003e\u003c/p\u003e\u003ch3\u003e\u003cstrong\u003eFixed Asset Turnover Ratio\u003c/strong\u003e\u003c/h3\u003e\u003cp\u003eThis ratio is a rough measure of the productivity of a company\u0026#8217;s fixed assets (property, plant and equipment or PP\u0026amp;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\u0026#8217;s efficiency in managing these significant assets. Simply put, the higher the yearly turnover rate, the better it is.\u003c/p\u003e\u003cp style=\u0022padding-left: 200px\u0022\u003e\u003cstrong\u003eFixed Assets Turnover = \u003c/strong\u003eNet Sales / Total Average Asset\u003c/p\u003e\u003cp\u003eFor Exide industry- total average asset would include fixed assets \u0026amp; the capital work in progress.\u003c/p\u003e\u003cp\u003e\u003cimg loading=\u0022lazy\u0022 decoding=\u0022async\u0022 class=\u0022size-full wp-image-16349 aligncenter\u0022 src=\u0022https://www.5paisa.com/gujarati/finschool/wp-content/uploads/2022/01/8.4-3.png\u0022 alt=\u0022\u0022 width=\u0022627\u0022 height=\u0022243\u0022 srcset=\u0022https://www.5paisa.com/gujarati/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\u0022 sizes=\u0022(max-width: 627px) 100vw, 627px\u0022 /\u003e\u003c/p\u003e\u003cp\u003eFor FY21- total fixed assets= 2601.79+200.75+33.77= Rs.2836.31crs\u003c/p\u003e\u003cp\u003eFY20- total fixed assets= 2302.92+296.88+34.23= Rs.2634crs\u003c/p\u003e\u003cp\u003eAvg total fixed asset = Rs.2735.15crs\u003c/p\u003e\u003cp\u003e\u003cstrong\u003eFixed Asset Turnover = 10040.85/2735.15= 3.67x\u003c/strong\u003e\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\u0027text_slider_slide06\u0027 class=\u0027sa_hover_container\u0027 data-hash=\u0027Total-Asset-Turnover-Ratio\u0027 style=\u0027padding:4.9% 4.7%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; \u0027\u003e\u003ch2 style=\u0022text-align: left\u0022\u003e\u003cstrong\u003e10.5 Total Asset Turnover Ratio\u003c/strong\u003e\u003c/h2\u003e\u003cp\u003e\u0026nbsp;\u003c/p\u003e\u003cp\u003e\u0026nbsp;\u003c/p\u003e\u003cp\u003e\u003cimg loading=\u0022lazy\u0022 decoding=\u0022async\u0022 class=\u0022aligncenter wp-image-51599 size-full\u0022 src=\u0022https://www.5paisa.com/gujarati/finschool/wp-content/uploads/2022/01/Total-Asset-Turnover-Ratio.png\u0022 alt=\u0022Total-Asset-Turnover-Ratio\u0022 width=\u0022972\u0022 height=\u0022864\u0022 srcset=\u0022https://www.5paisa.com/gujarati/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\u0022 sizes=\u0022(max-width: 972px) 100vw, 972px\u0022 /\u003e\u003c/p\u003e\u003ch5\u003e\u003cstrong\u003eTotal Asset Turnover Ratio\u003c/strong\u003e\u003c/h5\u003e\u003cp\u003eThe 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\u003c/p\u003e\u003cp style=\u0022padding-left: 160px\u0022\u003e\u003cstrong\u003eTotal Asset Turnover = Net Sales / Average Total Assets\u003c/strong\u003e\u003c/p\u003e\u003cp\u003eFor Exide Industries- total assets for FY21 is Rs.9628.77 \u0026amp; FY20 is Rs.8242.08- avg comes to 8935.42\u003c/p\u003e\u003cp\u003eNet Sales is Rs.10040.85crs\u003c/p\u003e\u003cp\u003e\u003cstrong\u003eTotal Asset Turnover = 10040.85/8935.42\u003c/strong\u003e\u003c/p\u003e\u003cp style=\u0022padding-left: 160px\u0022\u003e\u003cstrong\u003e= 1.12x\u003c/strong\u003e\u003c/p\u003e\u003c/div\u003e\u003cdiv id=\u0027text_slider_slide07\u0027 class=\u0027sa_hover_container\u0027 data-hash=\u0027Working-Capital-Turnover-Ratio\u0027 style=\u0027padding:4.9% 4.7%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:400px; \u0027\u003e\u003ch2 style=\u0022text-align: left\u0022\u003e\u003cstrong\u003e10.6 Working Capital Turnover Ratio\u003c/strong\u003e\u003c/h2\u003e\u003cp\u003e\u003cimg loading=\u0022lazy\u0022 decoding=\u0022async\u0022 class=\u0022aligncenter wp-image-51600 size-full\u0022 src=\u0022https://www.5paisa.com/gujarati/finschool/wp-content/uploads/2022/01/Working-Capital-Turnover-Ratio.png\u0022 alt=\u0022Working-Capital-Turnover-Ratio\u0022 width=\u0022915\u0022 height=\u0022746\u0022 srcset=\u0022https://www.5paisa.com/gujarati/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\u0022 sizes=\u0022(max-width: 915px) 100vw, 915px\u0022 /\u003e\u003c/p\u003e\u003cp\u003e\u0026nbsp;\u003c/p\u003e\u003ch5\u003e\u003cstrong\u003eWorking Capital Turnover Ratio\u003c/strong\u003e\u003c/h5\u003e\u003cp\u003eWorking 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 \u0026#8220;current,\u0026#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).\u003c/p\u003e\u003cp style=\u0022padding-left: 160px\u0022\u003e\u003cstrong\u003eWorking Capital\u003c/strong\u003e = Current Assets – Current Liabilities\u003c/p\u003e\u003cp\u003eIf 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.\u003c/p\u003e\u003cp\u003e\u003cstrong\u003eThe working capital turnover ratio\u003c/strong\u003e 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.\u003c/p\u003e\u003cp style=\u0022padding-left: 240px\u0022\u003e\u003cstrong\u003eWorking Capital Turnover\u003c/strong\u003e= Net Sales/ Avg Working Capital\u003c/p\u003e\u003cp\u003eLets calculate this for Exide Industries:\u003c/p\u003e\u003cp\u003eWorking Capital for FY21= Current Assets- Current Liabilities\u003c/p\u003e\u003cp style=\u0022padding-left: 160px\u0022\u003e= 4394.89crs- 2314.85crs\u003c/p\u003e\u003cp style=\u0022padding-left: 160px\u0022\u003e= Rs.2080.04crs\u003c/p\u003e\u003cp\u003eWorking Capital for FY20= Current Assets- Current Liabilities\u003c/p\u003e\u003cp style=\u0022padding-left: 160px\u0022\u003e= 3339.50crs- 1744.25crs\u003c/p\u003e\u003cp style=\u0022padding-left: 160px\u0022\u003e= Rs.1595.25crs\u003c/p\u003e\u003cp style=\u0022padding-left: 160px\u0022\u003eAvg. Working Capital [(2080.04+1595.25)/2] Rs.1837.62crs\u003c/p\u003e\u003cp style=\u0022padding-left: 160px\u0022\u003eWorking Capital Turnover (Net Sales/Avg. 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Activity Ratios Operating Ratios also called ‘Activity ratios’ or the ‘Management ratios’ indicate the efficiency of the company’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 … \u003ca title=\u0022Understanding Activity Ratio in Stock Markets\u0022 class=\u0022read-more\u0022 href=\u0022https://www.5paisa.com/gujarati/finschool/course/fundamental-analysis-course/activity-ratios/\u0022 aria-label=\u0022Read more about Understanding Activity Ratio in Stock Markets\u0022\u003eRead more\u003c/a\u003e\u003c/p\u003e","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}]}}