1. DOL (Degree of Operating Leverage)

% change in operating profits/% change in sales = 1+(fixed operating costs)/(operating profits)

2. Total assets turnover ratio

captures how efficiently assets are being utilized to generate revenues. Higher the ratio means the firm is utilizing their assets more efficiently to generate sales.

3. Total Assets Turnover formula

sales/total assets

4. Accounts Receivable Turnover Ratio

indicates the average time until firms collect receivables in cash.

5. Accounts Receivable Turnover Formula

Sales/Average accounts receivable

6. Avg. # of days rec. outstanding formula

365/accounts receivable turnover

7. Inventory Turnover Ratio

measures the length of time needed to produce, hold, and sell inventories

8. Inventory Turnover Ratio Formula

COGS/Inventory

9. Fixed asset turnover ratio

measures the efficiency with which the firm is using its fixed assets (PP&E)

10. Fixed asset turnover ratio formula

Sales/Net Fixed Assets

11. Increasing the fixed asset turnover ratio generally indicates _________________________________________________, but if a firm has excess capacity, it can indicate ______________________________________.

greater efficiency in the use of existing fixed assets, increasing utilization of that capacity

12. Firms invest in fixed assets in anticipation of

higher production and sales in future periods. Thus, a temporarily low or decreasing rate of fixed asset turnover may signal an expanding firm preparing for future growth.

13. Disaggregate ROA

1. Profit margin and Total asset turnover
2. Profit margin into expense ratios

14. ROCE should be _______ than ROA if leverage is used effectively.

higher