10.2.3—Financial efficiency ratios

Efficiency ratios such as inventory turnover, receivables days, payables days and asset turnover relate resources or working capital to sales or cost. They help identify where cash or capacity is tied up.

Interpretation requires industry, seasonality, credit terms and trend. Improving one ratio can shift risk or quality elsewhere.

Faster inventory turnover may release cash, but if stockouts increase, the apparent improvement may damage service and sales.

A ratio does not reveal the mechanism alone; investigate policy, mix, timing and data quality.