Efficiency

Calculate and Interpret the Return on Sales Ratio

The Return on Sales (ROS) ratio, also known as the “operating profit margin”, is used to evaluate the operational efficiency of a company by measuring the management’s competence in its effective use of each sales dollar the company generates. The Return on sales provides an indication as to how well costs are managed and [...]

Calculate and Interpret Operating Margin

The operating margin is a ratio used to measure the proportion of a company’s revenue that is left after paying the variable costs associated with production. These costs can include labor (wages), raw materials, general and administrative expenses, advertising and more. Analyzing a company’s operating margin can help understand its operating efficiency and [...]

Calculate the Asset Turnover Ratio

The asset turnover ratio is used to measure the relationship the company assets and its revenues. The calculation provides an indication of how efficient the company is in leveraging its assets. High and/or improving asset turnover ratios are generally favorable for a company. A low asset turnover ratio can indicate efficiencies or obsolete [...]

Calculate the Average Collection Ratio

For large transactions, most businesses offer their customers the opportunity to purchase goods or services through credit. The Average Collection Period is the average amount of time that it takes for the company to receive payments on the receivables it is owed. Sometimes referred to as the “collection ratio”, the average collection period measures [...]