Technicals Stability Returns

## Understanding Efficiency Ratios

Efficiency ratios are a financial measure that measures how effectively a company uses its assets as well as how it manages its liabilities. Efficiency ratios are used to determine repayment of liabilities, receivables turnover, Inventory Turnover and assets utilization, period of receivables, etc. It is used to calculate the efficiency of the companies.

Efficiency Ratios are also known as Activity Ratios. Investors use this metric to analyze the company's ability to utilize its resources.

##### Current Ratio

The Current Ratio is used to assess the short-term financial position of a company's concern. That means it indicates the company's ability to meet its short-term obligations that are due within one year. It is calculated as Current Assets divided by Current Liabilities. The Current Ratio is also known as Working Capital Ratio.

##### Quick Ratio

The quick ratio is calculated by dividing quick assets by current liabilities. Quick assets are those assets that can be converted quickly into cash. It indicates whether the company can pay its current short-term obligations or not using its quick assets.

##### Cash Ratio

The Cash Ratio measures the liquidity position of the company. This metric indicates how much the company can cover its current liabilities with its cash and cash equivalents.

##### Inventory Turnover Ratio

Inventory Turnover Ratio indicates how efficiently a company manages its inventory and how quickly it is converted into sales.

##### Days in Working Capital

Days in Working Capital measures the liquidity and efficiency of the company, which indicates how many days a company takes to convert its working capital into sales revenue.

##### Cash Turnover Ratio

The Cash Turnover Ratio indicates the number of times cash and cash equivalents are turned into revenue in an accounting period.

##### Inventory Day

Inventory Days is an Efficiency metric that indicates how many days it takes for a company to convert its inventory into sales. It is calculated as dividing 365 days divided inventory turnover ratio.

##### Account Receivable Turnover

Account Receivable Turnover Ratio measures the number of times a company collects its receivables. This ratio indicates how well the company accumulates its due receivables.

##### Account Receivable Day

Account Receivable Days indicate the average number of days a company takes to settle invoices. It refers to the amount of money owed to the company by its customer. Account receivables days are calculated as 365 days divided by the account receivable turnover ratio.

##### Accruals Ratio

Accruals Ratio measures the company's revenue and incurred expenses that impact its income statement and balance sheet, representing its non-cash assets and liabilities.

##### Operating Cycle Ratio

The operating cycle determines the time taken by the company's process of putting cash in operations and returning it to the cash account. It measures how long it is tied up in the Operating Cycle. The operating cycle defines the life cycle of cash used in operational activity.

##### Operating Expenses Ratio

Operating Expenses Ratio measures the efficiency and profitability of the company. This metric indicates how well the company controls its expenses relative to revenue.

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