From the course: Excel: Management Accounting
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Operational ratios in Excel - Microsoft Excel Tutorial
From the course: Excel: Management Accounting
Operational ratios in Excel
- [Instructor] Operational ratios help firm executives drill down and understand what aspects of the firm are running smoothly and where more attention is needed. Let's take a look at some of the major operational ratios, shall we? Two important operational ratios you might be interested in are inventory turnover and days sales outstanding. Each of them tells us different things. The inventory turnover ratio tells us if the firm has a ballooning inventory problem. In other words, are they making a whole bunch of product and then that product isn't selling fast enough. Remember, when a firm holds too much inventory that really means the firm is using capital inefficiently. The more inventory you're holding, the more capital you need on hand. So a firm wants to have enough inventory that they can meet unexpected surges in sales demand, but not so much inventory that it's inefficient and wasteful. Inventory turnover helps us to measure this. DSO or days sales outstanding is equal to our…
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