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    Security features of the new naira notes revealed by the CBN

    JUST IN: CBN orders banks to begin payment of new notes over the counter

    Atiku heads to Europe on ‘business trip’

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    ‘Elements’ in Aso Villa want APC to lose election – El-Rufai

    Suspected herdsmen ambush Benue policemen, kill DPO

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    • Nigeria
    • Africa
    • World
  • Economy
    • All
    • Budgets
    • Economic Data
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    Nigeria’s total public debt rises by over 20% YoY to N32.92 trillion

    FG explains why Nigeria’s total debt will rise to N77 trillion by the end of May 2023

    U.S unemployment fell to a five-decade low

    U.S unemployment fell to a five-decade low

    Nigeria’s total public debt rises by over 20% YoY to N32.92 trillion

    Nigeria’s total debt rise above N44 trillion – DMO

    FG approves 39 licences for fish importation

    Q3 2022: Nigeria’s total trade stood at N11.6 trn, total export falls nearly 20% QoQ

    Update: Central Bank of Nigeria instructs banks to close accounts related to Crypto

    JUST IN: CBN limits weekly cash withdrawal to N100k

    Law to legalize crypto as a payment method passed in Brazil

    Law to legalize crypto as a payment method passed in Brazil

    Will Nigerians in diaspora be committing an offence if they make a campaign donation?

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    Non-oil sector contributes 93.67% to Nigeria’s GDP in Q2 2022

    Nigeria’s GDP growth slows to 2.25% in Q3 2022, oil sector contribution declines further

    Buhari to unveil new naira notes Wednesday — no longer Dec 15

    Buhari to unveil new naira notes Wednesday — no longer Dec 15

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    • Economic Data
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    Nigeria’s GDP grows 5.01% YoY in real terms in Q2 2021

    Equities Market Recorded Gains… As NGX-ASI Grows Marginally By 0.49%

    Equity Market turns bearish… As Value Traded Spikes by 409.01%

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    Local Bourse Records 2nd Day Loss…… As NGX-ASI Decreases by 0.02%

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Home Financial Education

Financial ratios: Efficiency ratios explained

Sunday, 28 February 2021, 12:17 am
in Financial Education, Investogist Business Saturday, Opinion & Analysis
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Investogist Business Saturday – Financial Ratios
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In the last two articles, I discussed profitability, market, liquidity and leverage ratios. In this article I will be discussing efficiency ratios.

Efficiency ratios measure the ability of a firm to employ its resources efficiently to generate income. There is high correlation between efficiency ratios and profitability ratios.

If a firm has improved its efficiency ratios over time, this could indicate that the company has become more profitable.

  • Read: Financial Ratios: Liquidity and Leverage Ratios
  • Visit Investogist’s homepage for more articles

Inventory turnover: measures the number of times a company bought and sold its stocks within a given period. In general terms, the higher the inventory turnover ratio, the lower the capital tied up in inventories and the more efficient the managers are in selling inventory rapidly.

Inventory turnover ratio = Cost of goods sold/Average inventory

Average inventory is calculated by dividing the sum of the beginning inventory and ending inventory by two.

Inventory turnover ratio can also be calculated using revenue instead of cost of goods sold but the later gives more accuracy.

Accounts receivables turnover ratio: measures how efficiently a company extends credit and collects its debts. A high receivables ratio compared to its industry peers shows that a company is more efficient than its competitors in collecting its debts when due.  The ability of a company to collect cash sooner form customers will improve its cash flow as well.

The receivables turnover ratio of firm should be monitored to determine if a trend or pattern is developing.

Receivables turnover ratio = Net credit sales / Average accounts receivable

Net credit sales = sales revenue – returns from customers

Average accounts receivable is the sum of starting and ending accounts receivables over a given period divided by two.

Accounts payable turnover ratio: measures how quickly a business pays its creditors during the accounting period. The higher the result, the longer the company is taking to pay its suppliers.

Net credit purchases = Net credit purchases/average accounts payable

Since the number for net credit purchases and net credit is often not available, analysts often substitute COGS as the numerator instead.

Average accounts payable is the sum of starting and ending accounts payable over a given period divided by two.

Asset turn over period: this ratio measures the ability of a company to generate sales revenue from its assets. A high value implies that the management of the company is utilizing the company assets effectively while a low value implies inefficient use of assets.

Asset turnover ratio = Revenue / Average total assets

Average total asset is the sum of starting and ending total assets over a given period divided by two.

In conclusion, financial ratios are important metrics used by managers to evaluate the operations of a business. On the hand, investors and lenders use these ratios to analyse the health of a company and decide whether the business presents a good investment opportunity or the level of risk involved.

Ifunanya Ikueze
Ifunanya Ikueze

Ifunanya Ikueze is an Engineer, Safety Professional, Writer, Investor, Entrepreneur and Educator.

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Security features of the new naira notes revealed by the CBN

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