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Debt and equity ratio analysis - Coggle Diagram
Debt and equity ratio analysis
Stock turnover
The stock turnover ratio measures the number of times an organization sells its stocks within a time period, usually one year.
COGS / Average stock
Higher the better
In order to improve it
Holding lower stock
Reduce range of products
Disposal of unused stock
Debtor days
The debtor days ratio measures the number of days it takes a business, on average, to collect money from its debtors.
(Debtors / total sales revenue) x 365
lesser the better
Creditor days
The creditor days ratio measures the number of days it takes, on average, for a business to pay its trade creditors.
creditors / Total sales revenue
Not to be too high or low
Gearing ratio
The gearing ratio is used to assess an organization's long term liquidity position.
Non current liabilities / capital employed
Lower the better
Insolvency
This occurs when an insolvent firm cannot make a payment owed to creditors because it does not have the cash to do so.
Balance sheet insolvency
his occurs when the liabilities (debts) of the firm exceed its assets.
working capital cycle
The interim period between cash payments for costs of production and cash receipts from customers is known as the working capital cycle