Question

Need answers to the five following ratios:

Day Sales in Inventory

Average Collection Period

Dividend Payout Ratio

Return on Sales

Current Ratio

Answer 1

1) Day sales In inventory

It is number of days in year (360 or 365) divided by inventory turnover ratio,

= 360 or 365/ inventory turnover ratio

Where inventory t/o ratio = cost of good sold/ Average inventory

Day sales in inventory represent how long company have to wait for turn its inventory into sales..

2) Average collection period = 365 days/ receivable turnover ratio

Receivable t/o ratio = Net sales/ average receivable

Average collection period represent in how much time company would able to recover the amount from its debtors

3) Dividend payout ratio

It is divided paid out to shareholder in relate to its net income

= Dividend paid / Net income

And the unpaid amount is retaining by company for future growth purpose,

4) Return on sales = Net income / Sales

It is return earned by company on salessales after deducting all the expenses related to it

5) Current ratio = Current asset/ current liabilities

It represents asset available for meeting its current liabilities

, How much asset a company have against the liabilities so that in case of immediate liabilities have to paid by company and for that such asset available or not it can me measured,