![]() ![]() A slow stock turnover rate could indicate that you have redundant stock in the business.Things to look out for with your stock turnover calculation include: Stock turnover is calculated in a very similar way to the other ratios: A high turnover shows that you are not overspending by buying too much stock and wasting resources on storing old or potentially redundant items. Your stock turnover calculation will tell you how long you sit on stock before turning it into cash and is a good measure of efficiency. Stock and raw materials awaiting sale or production will be costing your business money unless you have managed to organise payment terms with suppliers and customers in such a way that you can be paid for your product before you have to pay for the raw materials – no easy feat! ![]() Like your debtors, your outstanding creditors figure is a moment in time and if you choose a time in the month when it is lower or higher than normal, it will affect the result.An increasing creditor days period could be the result of one or two suppliers that you are deferring payment on for good reason – perhaps you have a dispute.Are they likely to take action which might, at best, damage your reputation and, at worse, force you out of business Examine your creditors listing and decide if you might be pushing your luck with any of them.A large figure or increasing trend could be an indication that you are struggling to pay your bills on time.Īgain, it’s worth taking a look at the details of your creditors before jumping to any rapid conclusions about the results. Your creditor days are calculated as follows: Outstanding creditors x 365Īs before, the result should be at or near the average terms that your suppliers offer you. A long creditor days period means you are keeping your money in the bank for as long as possible, but be aware that you could be damaging your relationship with your suppliers – or even putting them under strain – which could result in them applying limitations to the credit they offer you in future. Your outstanding debtors figure is a moment in time and if you choose a time in the month to calculate it when it is lower or higher than normal, it will skew your result.Ĭreditor days is the opposite side of the coin and is the average amount of time you are taking to pay your suppliers.This doesn’t mean that you can’t carry on activity in the background to obtain payment and treat is as a recovery later on, but it will give you a truer picture of your collection processes. ![]() ![]()
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