Balance sheet efficiency ratios - Part 1

Financial Forecasting in Python

Victoria Clark

CGMA Financial Analyst

financial statements

Financial Forecasting in Python

Debtors and creditors

  • Sell now, get paid later
    • debtors
  • Buy now, pay later
    • creditors
Financial Forecasting in Python

The debtor days ratio

  • How many days to receive payment from debtors

  • Lower ratio is better

  • Formula:

    • $Debtor$ $Days$ = $\frac{EndingBalanceDebtors}{Sales}$ $x$ $DaysInFinancialYear$

 

ddays_ratio = (debtors_end/sales_tot) * 365
Financial Forecasting in Python

Days payable outstanding (DPO ratio)

  • How many days to pay our creditors

  • Higher ratio is better

  • Formula:

    • $DPO$ = $\frac{EndingBalanceCreditors}{TotalCostOfGoodsSold}$ $x$ $DaysInFinancialYear$

 

dpo = (creditors_end/cogs_tot)*365
Financial Forecasting in Python

Let's practice!

Financial Forecasting in Python

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