Inventory Turnover and Payables and Receivables

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What is inventory?
Raw materials, work-in-progress and finished goods held by a business to enable production and meet customer demand
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What do financial efficiency rations analyse?
Financial efficiency rations analyse how effectively a business is managing its assets
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What are cost of sales?
Sum of all direct costs associated with making a product
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What is inventory turnover?
Inventory (stock) turnover measures how often each year a business sells and replaces inventory
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How is inventory turnover calculated?
Cost of Sales / Inventories
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What does a high inventory figure show?
Stock is sold quickly, thus bringing money into the business more rapidly
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How can holding more inventory help a business?
It can improve customer service and allow the business to meet demand
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What type of industries have a low inventory turnover?
Construction, engineering, industrial distribution
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What type of industries have a high inventory turnover?
Supermarket retail, fast-food and motor vehicle production
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How can a business increase its invetory turnover?
Adopting a JIT system so less stock is held, reducing product range
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What are receivables?
Amounts OWED TO a business by customers
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What are payables?
Amounts OWED BY a business to suppliers and other
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What are receivables days?
The average number of days taken by customers to pay amounts owed
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What are payables days?
The average number of days taken by a business to pay amounts it owes
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How do you calculate receivables days?
Receivables / Sales Revenue X 365
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How do you calculate payables days?
Payables / Cost of Sales X 365
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How do you calculate net current assets?
Current assets - Current liabilities
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Card 2

Front

What do financial efficiency rations analyse?

Back

Financial efficiency rations analyse how effectively a business is managing its assets

Card 3

Front

What are cost of sales?

Back

Preview of the front of card 3

Card 4

Front

What is inventory turnover?

Back

Preview of the front of card 4

Card 5

Front

How is inventory turnover calculated?

Back

Preview of the front of card 5
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