Efficiency Ratio Analysis & Example

Definition: Efficiency Ratios (also known as Activity ratios) are used to measure the effectiveness of the firm's use of resources.

Formula:
1) Average Collection Period = (Average Trade Debtors / Credit Sales) * No. of Days
2) Average Payment Period = (Average Trade Creditors / Credit Purchases) * No. of Days
3) Inventory Turnover Ratio = Cost of goods sold / Average inventory held
4) Debtors