Fundamentals of Business

Creditors turnover ratio

This ratio measures the amount of credit taken from suppliers.
Creditors/Purchases x 100

Companies will generally prefer this percentage to be high, indicating that they are taking long periods of often costless credit from the suppliers
However
It is as well to note that if too long a period of credit is taken it may reflect badly on the credit rating of the company and ultimately result in a restriction of credit from suppliers.
As with the debtors to sales ratio, it is more useful to express this ratio in terms of months or days taken to pay suppliers.

Creditors/Purchases x 12 = Average payment period in months
Creditors/Pur Purchase x 365 = Average collection period in days

Gearing a measure of level of debt
Gearing ratio = All loans + overdrafts/shareholders funds (equity)
Interest cover = Trading profit/interest

Profitability
Gross margin (%) = Gross profit/sales
Net margin (%) = Net profit/sales
Cost of materials (%) = Cost of materials/sales
Cost of labour (%) = Cost of labour/ sales
Overhead cost (%) = Overhead/sales

Asset efficiency
Capital or net asset turnover = Sales/Net sales
Debtor turnover = Sales/Debtors
Stock turnover = Sales/stock
Fixed asset turnover = Sales/fixed assets

Risk
Margin of safety = (Sales - Break even sales)/Sales

Performance
Return on shareholders funds (%) = net profit (after interest) / shareholders funds
Return on total assets = operating profit (before interest) / total assets