1. © Instituto Internacional San Telmo, 2012
OPERATIONAL RATIOS

2. OPERATIONAL RATIOS
How can we know if the amount of money invested is adequate for the business?
We will leave aside investments in fixed assets, which exceed the scope of this block.
Let’s focus on investments in current assets. Looking only at the figure of dollars
invested in customer receivables, or in inventories, it is not easy to make any judgement
about the necessity of its necessity or efficiency .
So it is useful to transform figures in dollars into operational ratios, normally days, since
this can help us form an opinion on the efficiency of management. Let’s examine the
following items on the BS:
•
•
•
•
Inventory
(or Stock)
Account
Receivables
Cash
Account
Payables
Cash: days of expenses
Account receivables: collection period
Stocks: days of inventory
Account payables: payment period

3. Cash
Inventory
(or Stock)
Account
Receivables
Cash
Account
Payables

4. Cash
Inventory
(or Stock)
Account
Receivables
Cash
Account
Payables
Note:
We are assuming that year end statements are being
used, so any figure in the P&L refers to a complete
year. If we use quarterly statements, we must divide
by 90, and by 30 if monthly statements are used.
If the firm is seasonal, attention must be paid to the
date when the statements are formulated. It is
recommended to use quarterly or monthly P&L data to
compute all the operational ratios in seasonal firms.

5. Example - CASH
Here are the financial statements of a commercial firm for the year 2013
B.S. items 31/12/2012 31/12/2013
Cash
65
85
Receivables
320
420
Inventory
183
210
Payables
260
256
P&L
Sales
-Cost of goods sold
Year 2013
1,854
1,315
Gross margin
539
- Operating Expenses
215
EBITDA
324

6. Example
Here are the financial statements of a commercial firm for the year 2013
B.S. items 31/12/2012 31/12/2013
Cash
65
85
Receivables
320
420
Inventory
183
210
Payables
260
256
P&L
Sales
-Cost of goods sold
Year 2013
1,854
1,315
Gross margin
539
- Operating Expenses
215
EBITDA
324
We have cash enough to pay for 20 days of expenses.

7. Collection period
Inventory
(or Stock)
Account
Receivables
Cash
Account
Payables

8. Example- Receivables
Here are the financial statements of a commercial firm for the year 2013
B.S. items 31/12/2012 31/12/2013
Cash
65
85
Receivables
320
420
Inventory
183
210
Payables
260
256
P&L
Sales
-Cost of goods sold
Year 2013
1,854
1,315
Gross margin
539
- Operating Expenses
215
EBITDA
324

9. Example - RECEIVABLES
Here are the financial statements of a commercial firm for the year 2013
B.S. items
31/12/2012 31/12/2013
65
85
We have enough cash to pay for 20 days of expenses.
Receivables
320
420
Our collection period is 83 days of sales.
Inventory
183
210
Payables
260
256
Cash
P&L
Sales
-Cost of goods sold
Year 2013
1,854
1,315
Gross margin
539
- Operating Expenses
215
EBITDA
324

10. Inventory
Inventory
(or Stock)
Account
Receivables
Cash
Account
Payables

11. Example - Inventory
Here are the financial statements of a commercial firm for the year 2013
B.S. items 31/12/2012 31/12/2013
Cash
65
85
Receivables
320
420
Inventory
183
210
Payables
260
256
P&L
Sales
-Cost of goods sold
Year 2013
1,854
1,315
Gross margin
539
- Operating Expenses
215
EBITDA
324

12. Example - RECEIVABLES
Here are the financial statements of a commercial firm for the year 2013
B.S. items
31/12/2012 31/12/2013
65
85
We have enough cash to pay for 20 days of expenses.
Receivables
320
420
Our collection period is 83 days of sales.
Inventory
183
210
We have stock in our warehouses for 58 days of sales.
Payables
260
256
Cash
P&L
Sales
-Cost of goods sold
Year 2013
1,854
1,315
Gross margin
539
- Operating Expenses
215
EBITDA
324

13. Payment period
Inventory
(or Stock)
Account
Receivables
Cash
Account
Payables

14. Example - PAYABLES
Here are the financial statements of a commercial firm for the year 2013
B.S. items 31/12/2012 31/12/2013
Cash
65
85
Receivables
320
420
Inventory
183
210
Payables
260
256
P&L
Sales
-Cost of goods sold
Year 2013
1,854
1,315
Gross margin
539
- Operating Expenses
215
EBITDA
324

15. Example - PAYABLES
Here are the financial statements of a commercial firm for the year 2013
B.S. items
31/12/2012 31/12/2013
65
85
We have enough cash to pay for 20 days of expenses.
Receivables
320
420
Our collection period is 83 days of sales.
Inventory
183
210
We have stock in our warehouses for 58 days of sales.
Payables
260
256
Our payment period is 71 days of purchases.
Cash
P&L
Sales
-Cost of goods sold
Year 2013
1,854
1,315
Gross margin
539
- Operating Expenses
215
EBITDA
324

16. © Instituto Internacional San Telmo, 2012