Balance sheet efficiency ratios - Part 2

Financial Forecasting in Python

Victoria Clark

CGMA Financial Analyst

Days in inventory

The inventory question:

How much stock is too little, and how much is too much?

  • How many days to sell our inventory

  • Days in inventory ratio:

    • $DII$ = $\frac{AverageInventory}{TotalCostOfGoodsSold}$ $x$ $DaysInFinancialYear$

  • Desired level depends on the industry

Financial Forecasting in Python

Asset turnover ratio

  • Assets compared to sales generated
  • Highly dependent on the industry

  • Formula:

    • $Asset$ $Turnover$ = $\frac{Sales}{TotalAverageAssets}$

  • Production company: high level of assets & low ratio

  • Tech start up: low level of assets & high ratio
Financial Forecasting in Python

Let's practice!

Financial Forecasting in Python

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