Financial Terms SUP 3043_1 Supply Chain

Operations Management
Appendix 5A, Supply Chain Management a Logistics Perspective. Coyle, Langley, Novack and
Gibson
 Account receivable: A current asset showing the amount
of sales owed by a customer

Balance sheet: A snapshot of everything the company

owes and owns at the end of the financial year in
question.
Financial
Terms Cash cycle: The time between payment of inventory and
collection of cash from receivables.

Cash flow statement: A summary showing the cash

receipts and payments from all company financial
activities, earnings before interest, taxes, depreciation,
and amortization (EBITDA)
 Cost of goods sold: The total cost of goods sold to
customers during the period

Cost of lost sales: The short-run forgone profit

associated with stockout
Financial
terms Current assets: Cash and other assets that will be
converted into cash during one operating cycle.

Current liabilities: An obligation that must be paid

during the normal operating cycle, usually one
year.
 Current ratio: Current assets divided by current
liabilities; measures company’s ability to pay short-
term debts with assets easily converted to cash.

Debt-to-equity ratio: Long-term debt divided by

shareholder’s equity.

Financial
terms Earnings before interest and taxes [EBIT]: Sales
minus cost of goods sold and operating costs.

Earnings per share: Net earnings divided by

average number of shares outstanding.

Gross margin: Sales
minus cost of goods
sold.
Financial
terms Inventory carrying cost:
The annual cost of holding
inventory; the value of the
average inventory times
the inventory carrying cost
rate [W].
Income statement: A
summary of revenues and
expenses, reporting the
net income or loss for a
specific accounting period.
Inventory carrying cost rate
[W]: The cost of holding $1 of
inventory for one year, usually
expressed as a percentage;
includes cost of capital, risk,
item servicing, and storage
space.
 Inventory turns: Cost of goods sold divided by
average inventory.

Liquidity ratio: Cash flow from operations divided

by current liabilities; measures short-term cash
available to pay current liabilities.
Financial
terms Net income [or loss]: Financial result of all revenue
and expense items for a period; sales minus cost of
goods sold, operating costs, interest and taxes.

Operating expense: All expenses other than cost of

goods sold, depreciation, interest, and income tax.
 Operating ratio: Percentage of revenues
used for operations; operating expenses
divided by operating income.
Order-to-cash cycle: The time between
receiving customer orders and the
Financial collection of receivables.

terms Profit margin: Net income divided by

sales.

Return on assets: Net income divided by

total assets.
 Shareholders’ equity: The difference between the
value of all things owned by the company and the
value of all things owed by the company; the
investment made by the stockholders at the time
stock was originally issued plus all past earnings
that have not been paid out in dividends; sum total
of shareholders’ investment in a company since it
Financial was formed, minus its liabilities.

terms Working capital: Current assets minus current

liabilities; working capital finances the business by
converting goods and services to cash.

Source: Coyle et. al. Supply Chain Management: A logistics

perspective. Page 177-178