Formula reference—Financial efficiency ratios

Inventory turnover relates cost of sales to average inventory; receivables and payables days relate balances to the relevant sales or purchases flow. Use average balances when the question or data require them.

A formula is meaningful only when numerator, denominator, time period and unit are consistent. State whether a result is a percentage, a turnover or days.

Receivables days of 30 means the average balance represents roughly 30 days of credit sales under the model’s assumptions; it is not a direct measure of every customer’s payment.

A mechanically correct ratio can mislead if the denominator is mismatched or seasonal.