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1.

Calculatinginventory
turnover
http://www.business.gov.au/businesstopics/sellingproductsand
services/managinginventoryorstock/Pages/calculatinginventory
turnover.aspx
Inventoryturnoverishowquicklyyousellyourinventory.
Understandingyourinventoryturnovercanhelpyoudecidehow
muchinventorytoorder.Thiscanhelpyoumanageyourinventory
costsandthecashflowofyourbusiness.
Inventoryturnover=Costofgoodssold/(0.5xOpeninginventory
+0.5xClosinginventory)
Ifyouhaveaninventoryturnoveroftwo,forexample,thenyou
sellallyourinventorytwiceperyear.

Inventoryturnoverratioexamples
Samhasabusinessthatsellspensandwantstocalculatehis
inventoryturnovertocheckifhestocksenoughpens.
Samknowshiscostofgoodssoldis$50000.Atthestartofthe
financialyear,hehad$6000ofinventory.Attheendofthe
financialyear,hehad$14000ofinventory.
Usingtheinventoryturnoverformula,hecalculateshisinventory
ratioas4.5,whichmeansheturnsoverhisinventory4.5timesper
year.Hethinksthisisneithertoohighorlow,sodecidesnot
toincreasethenumberofpensthanhecurrentlystocks.

Tipswhencalculatingyourinventoryturnover
ratio

Perishableproductsshouldhaveahigherturnoverratiothannon
perishables.Youshouldntsellperishableproducts,suchasmilk,
aftertheygooutofdate.Becauseofthis,theyshouldhavea
higherinventoryturnoverratiothannonperishableproductssuch
asbricks.

Lowinventoryturnoverratioscanindicateyourestockingtoo
muchinventory.Stockingtoomuchinventorycanmeanyoure
spendingtoomuchonstoragecosts.Considerstockingless
inventoryifyouhaveaverylowinventoryturnoverratio.

Inventoryturnoverratiobenchmarks
Benchmarkingyourinventoryturnoverratioisevaluatingyour
inventoryturnoverratiobycomparingitwithastandard.
Youcanusebenchmarkingtocompareyourinventoryturnover
ratiowiththeinventoryturnoverratiosofyourcompetitors.You
canalsouseittocomparetheinventoryturnoverratiosofdifferent
productsyouselltoworkoutifyouarestockingenoughortoo
muchoftherightproducts.
Checkouttheseexamples:

Janesellssmartphonesandhasaninventoryturnoverratiooftwo.
Shefindsouthercompetitorshaveaninventoryturnoverratioof
four,sohersisonly50%ofhercompetitors.Shethinksthisistoo
low,sincehercompetitorsmaybestockingmorepopular,upto
datesmartphonesthanshedoes.

Jimsellsfourkindsofdolls.Hisaverageinventoryturnoverratio

is0.5.Onetypeofdollhesellsonlyhasaninventory0.1though,
whichisfivetimeslessthanhisaverage.Hethinksthismeansthis
dollislesspopular,soheshouldstocklessofit.
2. Total debt-total assets ratio- ISSUE IN ACTIVITY 1.5

The debt to total assets ratio is an indicator of financial


leverage. It tells you the percentage of total assets that were
financed by creditors, liabilities, debt.
The debt to total assets ratio is calculated by dividing a
corporation's total liabilities by its total assets.
A higher percentage indicates more leverage and more risk.
3. Interest Coverage Ratio= EBIT/Interest Expense

The interest coverage ratio is a debt ratio and profitability


ratio used to determine how easily a company can pay
interest on outstanding debt. The interest coverage ratio may
be calculated by dividing a company's earnings before
interest and taxes (EBIT) during a given period by the
amount a company must pay in interest on its debts during
the same period.
Moreover, an interest coverage ratio below 1 indicates the
company is not generating sufficient revenues to satisfy its
interest expenses. If a companys ratio is below 1, it will likely
need to spend some of its cash reserves in order to meet the
difference or borrow more, which will be difficult for reasons
stated above. Otherwise, even if earnings are low for a
single month, the company risks falling into bankruptcy.
Generally, an interest coverage ratio of 2.5 is often
considered to be a warning sign, indicating that the company

should be careful not to dip further.

4. Asset to Sales Ratio= Total Assets/ Sales Revenue

Itisthemeasureofefficiencywithwhichacompanyisusingitsassetsto
generatesalesorrevenue.
The concept is determining how well a company is utilizing its
assets to generate sales.
The higher this ratio, the smaller the investment required to generate sales revenue
and, therefore, the higher the profitability of the company
Generally speaking, the higher the asset turnover ratio, the better the company is
performing, since higher ratios imply that the company is generating more revenue
per dollar of assets.

5.Breakevenpoint=Totalfixedcosts/Averagepriceofeach
product/serviceAveragecostofeachproduct/servicetomakeor
deliver)
http://www.business.gov.au/business-topics/tax-financeinsurance/business-finances/Pages/analyse-your-finances.aspx