Aim of the assignment is to provide a comparative financial ratio analysis of the (BBC) British Broadcasting Corporation by analysing finance statements & annual reports of the Company. This assignment interprets financial statements in comparative and common-size form. These figures would be most useful for stock holder, creditor and also for long term creditor. Comparing these ratio are useful for the understand the strength and weakness of BBC and make suitable suggestions for future operations
Ratio analysing just not evaluate numbers from the financial statement like balances sheet , cash flows , profit and loss but they actually compare number with industry , last year and also with other companies to see own strength & weakness and also their sustainability of the firm in the industry.
FINANCIAL STATEMENT ANALYSIS:
Financial statements are a set of official records
Financial statement play significant role as they provide the indication of organization financial stability.
They are used for exterior and interior purpose like for future financial planning ,overall performances measurement , balance sheet , profit and loss accounts for the specify period
Financial Ratio Analysis includes calculating and evaluating ratio from one, two or many statement to other statements.
When we are analysing financial statement, ratios analysis is the most important tool.
Ratios mean express numbers in different terms of another. Ratio analysis establishes co-relationship between two or more statement and illustrate in the statics form.
BACKGROUND OF COMPANY
BBC Group Actively in the licensing of television programmes worldwide, publication of books , magazines , videos , dvds , cds , tapes and transmission and the other facilities. The (BBC) British Broadcasting Corporation is one of the world largest broadcasting organization and local service broadcasters with about 23,000 staff member in the United Kingdom. (BBC website). BBC is funded by royal charity and but mainly finances by the yearly TV licenses fee which is paid by UK residents. (The handbook of public affairs By Phil Harris, Craig S. Fleisher pg 247)(, 2005. Handbook of Public Affairs 1 Edition. Sage Publications Ltd.) Exclusive financing arrangement from UK household, which keep Advertisements free at least in UK. The BBC provide services including 8 national TV channels plus regional programming, 10 national radio stations, 40 local radio stations and an extensive website. (The BBC website)
BRITISH BROADCASTING CORPORATION BUSINESS HIGHLIGHT
Financial Profile of Company
CHANNELS: BBC Network of TV Channels has grown sales and profits by 16.4% and 34.2% Year on Year as mention in (BBC Annual Report 31st March 2010) , BBC has shifted their strategy from one channel joint ventures which brought brand appreciation value to BBC to more viewer engagement as well as higher and more sustainable returns
CONTENT & PRODUCTION: BBC is continuing to deliver the excellent profit from TV format like as dancing with the stars (The international format of strictly come dancing).In last three years BBC has made investment in new independent production companies.
DIGITAL MEDIA: BBC.com growing significantly in the term of Revenues and in the improvements on their Global website brings losses in the business which is down from £29.0m to £20.8m
GLOBAL BRANDS: Current establishment made it clear this business has added important value. BBC manage implement the Brand management disciplines to gain the international brand reorganization from various media activities- from live event to magazines , Lonely Planet in revenues in 2007 , 9% come to non-print activity where in 2010 with growth of ,22%.
SALES & DISTRIBUTION: There is strong growth in sales & distribution business which licenses all programmes in 2009/2010, Net Profit of £57.9m (not including of internal trading), with the increase by 26.4% year by year.
HOME ENTERTAINMENT: BBC DVD operation, 2 entertain Ltd added remarkable contribution to BBC with £38.2 m profit this year.
BBC online website is among the most popular English-language websites in the world - just below Google, according to rankings produced by Alexa TrafficRank system, in July 2008 (http://www.alexa.com/topsites)
There are three main financial statements are normally required for the external evaluation
An income statement (Profit & Loss)
Balance Sheet
Statement of cash flow
EXPLAIN PROFILE & LOSS ACCOUNT
PROFIT & LOSS ACCOUNT
Profit and loss (P & L) is official document which summarize company income and expenditure with in accounting year. It's important to understand the company position in market and also evaluation purpose internally and externally. These statements also provide the information about ability of organization to produces profit and reducing cost. P & L is the account whereby a buyer establishes the net end results of their business, this account disclose net profit or net losses of the business. The main objective of any business is to maximize their profit. This Account is significant to any owner or mangers to understand the business performances.
Profit & Loss Statement can be useful for various reasons
Measuring up the performance - with other competitors business or with previous year's company performances to see if the firm is moving in the right path.
Future planning - profits will allow the firm to expand
Obtaining a credit -mostly bank's would want to see that the firm is profitable before financing money
For Income tax use - taxes were payable normally on based of profits earned by the organization.
SIGNIFICANT ITEMS IN INCOME STATEMENT (PROFIT & LOSS)
REVENUE: The Sum of all charges of goods or services sold to customers, in both cash or on credit is indicated in the segment. . It is generally express as sales deducted sales discounts, returns, and allowances.
COST OF GOODS: sold this refers to charges of goods which have been sold during particular period of time. In order to calculate the cost of sold goods, it should be minus the total cost of goods to purchase the cost of sold goods at the ending of year.
Method for calculation
(Opening stock + Cost of goods purchased) - Closing stock = Cost of goods sold
GROSS PROFIT: signify to business profit or gross profit, the total difference between total sales of business and its explicit costs is called gross profit or business profit
Method for calculation
Gross Profit =Total Sales -Explicit Cost
OPERATING EXPENSES: The operating expenses also know as Operating cost, definition of OPEX is cost of current products, business or system. The operating Cost is day to day expense like as sales, production costs, administration or development etc. On the income statement "Operating costs" means total expense incur to run the business for the within the period of time.
NET PROFIT: is to adjusted gross profit on sales over total operating cost is called net profit or net profit from business. Net profit shows how well all over company perform under its normal trading situations.
OTHER INCOME: Additional sources of income are classifies as other income or non-operating income. In company these type comprise revenue from interest, rental fee, share and get from sale of fixed assets.
BALANCE SHEET
A balance sheet is called as "Statement of financial position " ,A balance sheet is financial statement of total assets and liabilities of organization arranged in the regular order to show it is true and correct at a particular time period. A balance sheet is important to understand the financial status of company, in balance sheet assets and liabilities are shown in details after being properly valued, a trader can judge the position of his business from it.
A balance sheet is divided into two parts:
ASSETS: Is anything which owned by business that includes land, buildings, equipment or anything which belong to business and has a value in money term for the purpose of financial reporting.
FIXED ASSETS are assets which are purchased not for sale but for eternal use in the company like land and buildings, plant and machinery, furniture etc. These assets help the business to run the daily activates.
CURRENT ASSETS represent those assets which are for sale or to be converted easily into cash after in short time. Like sundry debtors, bills receivables, stock of goods etc. Current assets also knows as CIRCULATING ASSETS OR FLOATING ASSETS
LIQUID ASSETS are those assets which are with company in form of cash or easily converted into cash e.g., cash in hand, cash at bank, investments etc.
Intangible or Fictitious Assets: which don't have any physical existences these are called Intangible asset. They contain debit balance of profit and loss account, goodwill etc.
OUTSTANDING WHICH ARE EXPENSES paid in advance i.e., prepaid expenses, and income earned but not received are known as outstanding assets.
Liabilities:
Fixed Liabilities which are paid instantly or in the near future. These liabilities are payable after a long period. Long term loans, capital of the proprietor are the examples of such kind of liabilities.
Current Liabilities: which are paid immediately or in the near future, such as creditors, bank loans etc.
Contingent Liabilities are incurred only on the occurrence of some event. Thus a contingent liability may or may not include payment of money. Contingent liabilities are not recorded in the books not they are included in the balance sheet. They are simply referred to by way of foot notes on the balance sheet.
Classification of Capital:
The excess of assets over liabilities is called the capital or the proprietor. Capital may be classified as follows on the basis of the capital fund invested:
Trading Capital:
This section of the finances of a concern which signify by the fixed and floating assets is called the trading capital
Fixed Capital:
This segment of the funds which is represented by the fixed assets is called fixed capital.
Circulating Capital:
The Section of the money is stand for floating or circulating assets is known as the circulating or floating capital.
Working capital:
This fund which remains for working of the business after the liabilities to obtain the fixed assets has been discharged. The surplus of the floating assets over the floating liabilities is known as the Working capital.
Loan Capital:
The debentures and other fixed loans are sometimes called loan capital.
Explain Cash Flow
Introduction to cash flow statement:
Cash flow statements are mainly to highlight the important activities which effect directly or indirectly on cash balance of the company, without sufficient funds on Time Company can loss present golden prospects or fall into bankruptcy. Cash flow Statement is one of the Analytical tools for Managers, investor creditor as well for owner of business, The Statement of Cash flow useful tools for forecasting business trends and used in budgeting process
The statement of cash flow reports the generation of cash and used in the particular time interval in right direction. The process of generation of cash flow statement it is generally defined cash and cash equivalents both are included. In Cash equivalents contain of Short terms, higher liquid investments like as treasury bills, business paper, and market funds, Most of the companies re-invest their access cash, so it is easily coveter into the cash. These liquid short term investments are inclusive of commercial guarantee on the balance sheet
The Statement of Cash separated into three segments
Operating
Investing
Financing activates
OPERATING ACTIVITIES are revenues generation activities inclusive of distribution or produce goods for sales and other events that entre into determination of income (Financial Statement Analysis and Reporting by Reddina Mohana Rao Page no 273)
Operating activities includes the Cash Inflows are associated with sales, interest and bonus revenues and Cash out flows related to employees, inventory expenses, administration, cash payment, that's Involve the cash effects of transactions that enter into the determination of net income
INVESTING ACTIVITIES generally deals with long term assets, below are example of such type of activities
Payment and Receipts occur from purchased or soled of fixed assets consist of Intangible asset
pay back and collects loans amount
Buy or sale of long-term investments like assets, plant and equipment
Page no 354 Financial Statement Analysis By Sinha
FINANCING ACTIVITIES: Includes funds transactions which relate to funds providers consist of both capital of business and suppliers of borrowing are classified in financing activates.
Financing activate records the cash flow transaction of share, loans, other short term or long term loan, debentures, bonds
It also keeps a record of repurchase of the business own bonds and supply and the payment of dividends.
Financing activities involve liability and stock holder's equity items (
Page no 354 Financial Statement Analysis By Sinha
Resulting and finding
The Objective of Financial statement analysis is to identifying the Strength and weakness of the organization by appropriately begins relationship between the items of the balance sheet and the profit and loss account.
There are different methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis.( http://www.accountingformanagement.com/accounting_ratios.htm)
Financial statements are important and prepared to use external reporting responsibility and also use for assessment purpose. Financial statement a significant role in taking strategy decisions in the organization.
Financial Ratio Analysis
Financial Statement Analysis:
Learning Objectives:
This assignment interprets financial statements in comparative and common-size form.
These figures would be most useful for stock holder , creditor and also for long term creditor
Definition and Explanation of Financial Statement Analysis:
The Objective of Financial statement analysis is to identifying the Strength and weakness of the organization by appropriately begins relationship between the items of the balance sheet and the profit and loss account.
Financial Ratio Analysis includes calculating and evaluating ratio from one, two or many statement to other statements.
When we are analysing financial statement, ratios analysis is the most important tool.
Ratios mean express numbers in different terms of another. Ratio analysis establishes co-relationship between two or more statement and illustrate in the statics form.
There are different methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis. ( http://www.accountingformanagement.com/accounting_ratios.htm)
Financial statements are very important and prepared to use external reporting responsibility and also use for assessment purpose. Financial statement a significant role in taking strategy decisions in the organization.
Ratio Analysis can be defined in five most important categories
Profitability Ratio
Liquidity Ratios or Long Term Solvency or Leverage Ratios:
Activity Ratios:
Financial Structure or capitalisation ratios
Market Test Ratio
Tools and Techniques of Financial Statement Analysis:
Following are the most important tools and techniques of financial statement analysis:
Horizontal and Vertical Analysis
Ratios Analysis
1. Horizontal Analysis
Comparison of two or more years of Income statement data is known as horizontal analysis, also called as trend analysis. A firm showing changes in operating outcome and financial status over time in percentage form as well as in dollars. This technique is normally used the income statement, sometime it is used in balance sheets of firm's
Horizontal analysis of financial income statements can also be carried out by calculating trend percentages. Trend percentage expresses numerous years' financial data in terms of a base year. The base year is equivalent 100%, with all other years fixed in some proportion of this base.
Vertical Analysis:
Vertical analysis is the procedure of preparing and presenting common size statements. Common size statement is one that shows the items appearing on it in percentage form as well as in dollar form. Each item is stated as a percentage of some total of which that item is a part. Key financial changes and trends can be highlighted by the use of common size statements. Click here to read full article.
RATIOS ANALYSIS:
Ratios Analysis is one of most powerful tool of financial statement analysis. Ratio means one number communicate in term of another
A ratio is a statistical standard by means of which relationship between two or different numbers can be compared or calculated
Ratios can be find out by dividing one number by another number and it also shows how one number is related to another
IMPORTANCE'S RATIO ANALYSIS
Ratio analysis is a significant and age-old method of financial analysis. The following are some of the advantages / Benefits of ratio analysis:
SIMPLIFYING FINANCIAL STATEMENTS: It simplifies the understanding of financial statements. Ratios explain the full story of changes in the financial situation of the business
MAKE POSSIBLE INTER-FIRM COMPARISON: It provides data for inter-firm assessment. Ratios emphasize the factors connected with successful and unsuccessful firm. Ratios analysis also makes possible comparison of the performance of different divisions of the firm. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future.
HELPS IN PLANNING: It helps in planning and forecasting. Ratios can assist management, in its basic functions of forecasting.
PROFITABILITY RATIOS:
Profitably ratios help to analyse business to see all over performances and also to see the capacity of the firm. Following are some of important and most popular ratios
Gross profit ratio
Net profit ratio
Operating ratio
Expense ratio
Return on shareholders investment or net worth
Return on equity capital
Return on capital employed (ROCE) Ratio
Dividend yield ratio
Dividend payout ratio
Earnings Per Share (EPS) Ratio
Price earning ratio
GROSS PROFIT RATIO
The essential method for the estimating of gross profit ratio has two important elements which are gross profit and net sales. Gross profit would be the difference between net sales and cost of goods sold.
Formula to calculate
[Gross Profit Ratio = (Gross profit / Net sales) Ã- 100]
Gross profit ratio may indicate the selling prices of good per unit may be decreased without incurring losses on operations. Gross Profit reveals the efficiency of firm producing its product. It may differ from business to business. A gross profit margins are found by deducting cost of goods from net sales, higher the gross margins is better for the organization. The gross profit should be covering all operating expenses and left after paying all the fixed interest charges and dividends.
Gross Profit Ratio trend of BBC for 5 years, as this graph showing us downfall of Gross profit Ratio in 2005 with 38.47% which is one of the lowest years that may be result of reduce in price of goods sold without equivalent decrease in selling price and also In 2006 BBC gross profit ratio slightly up by 0.15%. One of the most flourishing years of BBC was 2009 were GP is 44.28% may as a result of Increase of selling prices of products sold and in term of good years 2010 was barely down by -0.56 comparatively from 2009.
RETURN ON CAPITAL EMPLOYED RATIO (ROCE RATIO)
The main objective of any investment is to get profitable return on capital invested, so the Return on Capital Employed Ratio is used as a measure of success of any business.
The Return on Capital Employed ratio is a basic measure of business performance. These ratios express the connection between operating profits generated during a period and average) long term capital invested in during that period. (Eddie McLaney, 2002. Accounting: An Introduction. 2nd Edition. Financial Times Management)
Gross capital employed generally means the total assets, fixed and current, which used in business, whereas net capital employed indicates to total assets minus liabilities. It's also refers to total of capital, capital reserves, profits reserves (including profit and loss account balance), debentures and long term loans.
IMPORTANCE'S ROCE RATIO
Return on capital employed ratio is considered to be measure of profitability. Its evaluate input (capital invested) with outputs (operating profit). It's important in measure effectiveness with which funds have been invested.
Main objective of business to earn profit, get higher return on capital employed, ensure the firm is growing by using the funds. The ratio can be found for a number of years so as to find a trend as to whether the profitability of the company is improving or otherwise.
LIQUIDITY RATIOS:
Liquidity ratios measure the short term solvency of financial position of a firm. These ratios are calculated to comment upon the short term paying capacity of a concern or the firm's ability to meet its current obligations. Following are the most important liquidity ratios.
Current ratio
Liquid / Acid test / Quick ratio
CURRENT RATIO:
Current ratio mainly measure liquidity and analysis short term financial status of firm. This ratio define the ratio between current liabilities and current assets include cash and other assets which are easily convertible into cash within the short span of time, usually for on year marketable securities or bills , receivable , sunder debtors, work in progress , inventories etc.
Current liabilities are those debt which are to be paid within a short span of time normally one year and include outstanding expenses, bills payable, short term , bank overdraft advances ,sundry creditors, accrued expenses, payable, dividend payable, income tax etc.
IMPORTANCE'S CURRENT RATIO
Current ratio is a usually quick check of liquidity of a firm. It represents the margin of safety or cushion available to the creditors. It is an indicator of the firm's financial stability. It is also show of technical creditworthiness and a manifestation of the strength of working capital.
Above are the 5 years trends of BBC worldwide which indicates the firm's financial stability. A ratio equal to or near 2: 1 is considered as a standard or normal or satisfactory .In 2009 / 2008 BBC current ratio was 1.05 and 1.03 are near to normal standard ratio which means firm liquid and ability to pay its current bill on time and when they become due in that period.
Current ratio in 2007 and 2005 was 0.86 and 0.82 which was better than 2006 was one of lowest year in terms of liquidity of BBC is gone down by 0.78 which means firm was not in good position is paying all the bills on time may had faced difficulties.
An increase in the current ratio in 2008 which indicated the improvement in the liquidity position of the firm,
While decrease in the current ratio in 2009 that there has been deterioration in the liquidity position in BBC.
LIQUID OR LIQUIDITY OR ACID TEST OR QUICK RATIO:
Liquid ratio is also called as "Liquidity Ratio", "Acid Test Ratio" or "Quick Ratio". It is the ratio of liquid assets to current liabilities. Liquidity is in references to the ability of a firm to pay its short term obligations as and when they become due. The two aspect of liquid ratio are liquid assets and liquid liabilities.
Liquid ratio is normally use for measuring the firm liquidity position and also capacity to pay all current obligation instantly. It is more accurate test of liquidity then current ratio because it's subtracting inventories and prepaid expenses as a part of current assets. Generally higher liquid ratio mean firm has capacity to meet its current or liquid liabilities on time. As a standard, usually, a quick ratio of "one to one" (1:1) is considered to be satisfactory.
If you see Liquid trends of BBC, its shows liquidity Ratio of Company is very unstable; there was slight growth in 2007 which continued till 2009 with 0.92 but 2010 is one of the lowest years were liquid ratio even poorer than 2005 which was 0.75. Generally higher liquid ratio mean firm has capacity to meet its current or liquid liabilities on time. As a standard, usually, a quick ratio of "one to one" (1:1) is considered to be satisfactory. As you see in 5 years trends not even single year has upon standard ratio means there is instability in BBC for long time. Overall Liquidity Ratios of BBC is disappointing and insufficient liquid cash for payable
ACTIVITY RATIOS:
Activity ratios are calculated to measure the efficiency with which the resources of a firm have been employed. These ratios are also called turnover ratios because they indicate the speed with which assets are being turned over into sales. Following are the most important activity ratios; Activity Ratio is calculated to measure the effectiveness of the resources which is employed by the firm.
These ratios are called as turnover ratio because they evaluate speed with which turning into sales. Some examples of activity Ratios
Inventory / Stock turnover ratio
Debtors / Receivables turnover ratio
Average collection period
Creditors / Payable turnover ratio
Working capital turnover ratio
Fixed assets turnover ratio
Over and under trading
INVENTORY TURNOVER RATIO OR STOCK TURNOVER RATIO (ITR):
Every Business maintains the certain inventory of finished goods so they are able to meet requirement of the company. Level of inventory neither too low nor too high
A too high level of Inventory increase high level of carrying costs and higher risk of stocks becoming out of date on the other hand too low inventory means loss of company opportunities, normally standard rate as per industry 7 times (7:1)
Every Organization has to ensure they maintain a certain level of inventory of finished goods so later they be able to meet the requirements of the business. Inventory turnover ratio indicates the speed of which the inventory (stocks) is sold. The ratio should neither too high or too low, if it is too high it leads to inventory shortage cost and if it too low it leads to increase in inventory ordering and carrying cost. Hence the ratio should be of reasonable level. It's stranded level as per industry 7 times (7:1). Managerial Economics and Financial Analysis By V.S.Bagad Page No 8-4
Stock turnover ratio is also called as inventory turnover ratio. Two elements were taken into consideration one is cost of goods sold in the particular time and the cost of average inventory in the particular period of time.
This ratio indicates how many no of times stocks has been turned over during the time period and calculate the effectiveness with a organization manages its inventory and also point out whether asset in stock is in the appropriate limit or not
COMPONENTS OF THE RATIO:
Average inventory and cost of goods sold are the two elements of this ratio. Average inventory is calculated by adding the stock in the beginning and at the end of the period and dividing it by two.
The turnover ratios are indicator of profitability whereas high ratio show more profit, whereas less ratio means low profit. However the study of the comparative or trend analysis of inventory turnover is still useful for financial analysis.
LONG TERM SOLVENCY OR LEVERAGE RATIOS:
Long term Solvency risk examines a firm's capacity to meet up interest cost and on time commitments of principal payments on long term debts or related obligations as they come to due(Financial reporting, financial statement analysis, and valuation: a ...By Clyde P. Stickney, James M. Wahlen, Paul Brown, Stephen P. Baginski, Mark Bradshaw page no 370 para 3). Below are some of important long term solvency ratios.
Debt-to-equity ratio
Proprietary or Equity ratio
Ratio of fixed assets to shareholders funds
Ratio of current assets to shareholders funds
Interest coverage ratio
Capital gearing ratio
Over and under capitalization
Interest Cover
14.89
6.67
14.24
38.93
22.17
9.72
Profitability Ratio
In Profitability Trend demonstrate the overall growth in profit margins.
BBC is well growing fast and significantly in the all over its business exploring new opacities in other area of industry ,this not a onetime but they have delivered increasing levels of profit since 2004/05 BBC has total achieved in last year was 10.62%
Statistics show's since 2006 BBC had dramatic change in profit margin with 15.61% to increasing profit margin 19%. On other hand in 2005 in profit margin is 9.12% which is increase of 6.49% but there is sudden drop in 2009 due to recession, market was hit and whole industry had a hard year.
Whereas Return on capital employed % has picked up in year 2004 and maintaining unstable tend in past recent years.
Gross profit ratio (GP ratio) is the ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit and sales.
As per annual report of BBC Worldwide
Gross profit ratio is the ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit and sale
Liquidity Ratios or short term Solvency ratio
Liquidity ratio calculates the short term financial status of the Company. These ratios are to evaluate the company short term paying capability to meet current requirement. Below are the important Liquidity ratios.
Current Ratio
Current ratio may be defined as the relationship between current assets and current liabilities. This ratio is also known as "working capital ratio". It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities.( http://www.accountingformanagement.com/current_ratio.htm)
Let see BBC Worldwide working capital Ratio =current assets -current liabilities
2010
2009
2008
Current Assets
348,200
326,100
278,200
Current Lab
386,800
310,300
271,100
Working Capital
-38,600
15,800
7,100Working Capital Ratio =
In order to measure the current ratio, two basic factors are very important Current assets and current liability of the company, current assets including cash and assets which can be convert into the cash easily in short time.
Current liabilities are the required to payable within a short period of time normally one year and which includes outstanding expenses, bills payable, sundry creditors etc.
Balances Sheet of the BBC show trends of increase of current assets in company and decrease of Current Liabilities
As a result the Current Ratio of the BBC Worldwide is negative means all liabilities are paid well in advances. This ratio is normally used to evaluate the liquidity of company , it show the safety margins to the creditors and it also key give you an idea about strength of working capital.
Activity Ratios:
Activity Ratio is calculated to measure the effectiveness of the resources which is employed by the firm.
These ratios are also known as turnover ratio because they evaluate speed with which turning into sales. Some examples of activity Ratios
Inventory / Stock turnover ratio
Every Business maintains the certain inventory of finished goods so they are able to meet requirement of the company. Level of inventory neither too low nor too high
A too high level of Inventory increase high level of carrying costs and higher risk of stocks becoming out of date on the other hand too low inventory means loss of company opportunities
Debtors / Receivables turnover ratio
Average collection period
Creditors / Payable turnover ratio
Working capital turnover ratio
