Efficiency Metrics
Efficiency metrics show how well a company puts its assets and working capital to work — how fast inventory sells, how fast customers pay, and how much sales each dollar of assets generates.
Total Asset Turnover
Revenue ÷ Total assets
Shows how efficiently a company converts its total assets into sales.
Strengths: A quick read on overall asset efficiency.
Watch out for: Naturally lower in capital-intensive industries, so it's not meaningful to compare across very different sectors.
Combine with: ROA (Total asset turnover × Net margin ≈ ROA — the classic DuPont breakdown).
Receivables Turnover / Days Sales Outstanding
Turnover = Revenue ÷ Accounts receivable. Days = 365 ÷ Turnover.
Shows how quickly a company collects cash from customers after a sale.
Strengths: Reveals the quality of a company's credit management and its customers' payment behavior.
Watch out for: A sudden lengthening of collection days can signal deteriorating customer finances — or in rare cases, aggressive revenue recognition — and deserves a closer look.
Combine with: Allowance for doubtful accounts and the cash conversion cycle.
Inventory Turnover / Days Inventory Outstanding
Turnover = Cost of goods sold ÷ Inventory. Days = 365 ÷ Turnover.
Shows how quickly inventory is sold and converted into cash.
Strengths: An early warning sign for excess inventory or weakening demand.
Watch out for: Normal levels vary a great deal by industry (retail vs. manufacturing), and figures can be affected by seasonality.
Combine with: Revenue growth rate (inventory building up while sales stall is a red flag).
Cash Conversion Cycle, CCC
Days inventory outstanding + Days sales outstanding − Days payable outstanding
Shows how many days pass between paying for inputs and collecting cash from a sale — an overall measure of working-capital efficiency.
Strengths: A shorter (or negative) CCC means less working capital is tied up, which is generally a sign of efficient operations.
Watch out for: Heavily influenced by industry norms, so it's most useful tracked over time for one company, or compared against close peers.
Combine with: Each of its three components individually.
Fixed Asset Turnover
Revenue ÷ Fixed assets
Shows how efficiently property, plant, equipment, and other fixed assets are being converted into sales.
Strengths: Helps confirm whether capital spending is actually translating into revenue.
Watch out for: Temporarily depressed right after a major capital investment, so a single year's number can be misleading.
Combine with: Total asset turnover and operating margin (to check whether the investment is also translating into profit).