Strategic Planning in the Small Business

HO 2-5 (continued)

Unit

2

Table 2-8

Inventory

(Finished Goods) Turnover

Rates

Cost of Goods Sold

Average Inventory*

Year 4 Year

3 Year

2 Year 1

295,200

(77,000

+i 73,800) (96,500

278,400

+ 77,000)

342,300

(70,200 + 96'500)

280,800

70,200

3.9 times

3.2 times

4.1 times

4 times

'Ending

Inventory inYear 1

profitable years

three and four.

This is a good example

of the

danger of generalizations

with

respect to ratios.

Total Asset Turnover

Total asset

turnover is computed

by di­

viding sales by

total assets. Table

2-9 shows this

for Waverly

Custom Jewelers.

This contrasts the

change in sales to the change

in assets. The fall reflects

the fasteT growth

rate for assets than

for sales-usually

not a good pattern.

Table 2-9

Asset Turnover

Rates

Net Sales

Total

Assets'

Year 4 Year

3 Year 2

Year 1

493,000 464,000

489,000 421,200

260,500 247,800

209,500 178,800

1.9 times 1.9 times

2.3 times 2.4

times

Accounts Receivable

Turnover Accounts

rerivable turnover

is computed by

dividing annual credit

sales by average accounts

receivable. Accounts

receivable turnover

indicates the time

it

takes to collect

from credit sales. This

figure should be moni­

tored carefully and compared

to industry standards.

This ratio

is

most frequently used

to check on rate of collection

of re­

68

PartOne The Analysis

Phase

211