Sure, let's break down the various ratios and their interpretations point-by-point.
### a. Inventory Turnover Ratio and Its Interpretation
1. Inventory Turnover Ratio: 5.33 times
2. Interpretation:
- The inventory turnover ratio tells us how many times a company sells and replaces its inventory within a specific period (usually one year).
- An inventory turnover ratio of 5.33 times means that the company sells and replaces its inventory 5.33 times a year.
- This indicates the efficiency of inventory management. Higher values generally signify efficient management and good sales, while lower values may indicate overstocking or slow-moving inventory.
### b. Receivable Turnover Ratio and Its Interpretation
Note: The given data does not mention the receivable turnover ratio. Instead, it provides the days sales outstanding. These two metrics are often related, as the receivable turnover ratio can be derived from days sales outstanding and vice versa. For the interpretation of days sales outstanding, refer to point c.
### c. Days Sales Outstanding and Its Interpretation
1. Days Sales Outstanding (DSO): 36 days
2. Interpretation:
- Days Sales Outstanding (DSO) measures the average number of days it takes for a company to collect payment after a sale has been made.
- A DSO of 36 days indicates that, on average, it takes the company 36 days to collect payment from its customers.
- This can be a key indicator of a company’s efficiency in its credit and collections operations. Lower DSO values usually suggest quicker collections of receivables, leading to better cash flow.
### d. Fixed Asset Turnover Ratio and Its Interpretation
1. Fixed Asset Turnover Ratio: 10 times
2. Interpretation:
- The fixed asset turnover ratio measures how effectively a company generates sales revenue from its fixed asset investments (such as buildings, machinery, and equipment).
- A ratio of 10 times means that for every dollar invested in fixed assets, the company generates [tex]$10 in sales.
- This high value could suggest that the company is very efficient in using its fixed assets to generate revenue.
### e. Total Asset Turnover Ratio and Its Interpretation
1. Total Asset Turnover Ratio: 0.8 times
2. Interpretation:
- The total asset turnover ratio assesses how efficiently a company uses all of its assets to generate sales.
- A ratio of 0.8 times indicates that the company generates $[/tex]0.80 in sales for every dollar of total assets.
- This gives an overall picture of the efficiency of the company’s asset management. Higher ratios suggest better performance and asset utilization.
In summary, these financial ratios help in understanding various aspects of a company's operational efficiency and asset management. The interpretation of these ratios provides insight into inventory management, credit and collections efficiency, and how well the company is leveraging its fixed and total assets to generate sales.
