Microsoft's return on equity and margin, live
MSFT — ROE, Operating Margin. Open MSFT on the Ledge to see current values.
Four efficiency ratios and how to read them
| Ratio | Formula | Interpretation |
|---|---|---|
| Asset Turnover | Revenue / Total Assets | How many dollars of sales per dollar of assets |
| Inventory Turnover | COGS / Average Inventory | How quickly inventory sells (higher = faster) |
| Days Sales Outstanding | Receivables / (Revenue / 365) | Average days to collect payment |
| Cash Conversion Cycle | DSI + DSO - DPO | Days between paying suppliers and collecting from customers |
A short cash conversion cycle is free financing
A shorter cash conversion cycle means the company gets paid faster than it pays suppliers. That is free financing from the business model itself.
Compare efficiency across two companies
Compare two companies in the same sector using the Compare feature. Look at asset turnover and inventory metrics. Better efficiency often predicts outperformance.
Which company manages inventory better
Company A turns over inventory 12 times per year. Company B turns it over 4 times. Which manages inventory better?
Efficiency is the hidden edge: Walmart's turnover
Check your understanding
Sit with the ideas.
Walmart has asset turnover of 2.5x and inventory turnover of 8.5x. A luxury retailer has asset turnover of 0.8x and inventory turnover of 2.0x. Why the difference?
Why: