Financial efficiency ratios - examples
Supermarkets v fine art galleries
These very different industries will have very different ratios. Supermarkets sell a lot of goods cheaply and very quickly; fine art galleries sell a small number of goods infrequently for a high price. There is little credit in the supermarket, but that may not be the case with fine art. The result:
|Supermarket||Fine art gallery|
|Asset turnover||Very high||Low|
|Stock turnover||Very high||Low|
|Debtor days||Very low||High|
A supermarket will typically sell its stock on average every 2 weeks; have debtor days of about 2, but creditor days of about 40/50. Think about it, great for CASH FLOW.