In analysis of current assets on a company's financial statements, we often focus on the turnover...

In analysis of current assets on a company's financial statements, we often focus on the turnover of recievables, inventory, and accounts payable as a measure of the financial health of a business. explain how these calculations can help identify favourable or disturbing trends.

Expert Solution

Account receivables, inventory, and accounts payable turnover ratio are some of the important financial evaluation parameters of a business.

Accounts payable turnover of a business is defined as the money owned by the business to its suppliers and creditors. It is a short term debt payable to its creditors. The financial condition of a business can be gauged by the time it takes to pay off its debts. A falling trend in the ratio indicates that more time is being taken by the business to pay off its creditors, while an increasing trend indicates that it is paying off its debt quickly. Ideally a business should pay off its debtors quickly.
Inventory turnover ratio of a business indicates its ability to convert its inventory into sales. A lower ratio indicates that the business is efficient at selling its inventory. Hence a lower ratio is preferred.
Accounts receivable ratio is defined as the money a business is able to collect from its customers. A lower ratio is preferred as it indicates the business' ability to collect on its credit.

keosha answered 8 months ago

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