 In this module, we are going to discuss a very interesting concept of asset turnover ratio. So we have already discussed three different types of financial ratios and we discussed that those three ratios help us in understanding the overall profitability or the financial performance of a company. Now there is this new set of ratios which help us in understanding how efficiently a company or a firm is operating in the market. So this gives you these types of ratios which we are going to discuss now are giving you a different information or understanding from a different perspective. So the first thing we are going to discuss in this module is the concept of asset turnover ratio. It basically measures the value of a company's sales or revenues in terms of the value of its assets and this ratio can be used as an indicator of the overall efficiency with which a company is operating and utilizing its assets in order to generate the revenues. So the higher the asset turnover ratio, the more efficient the company will be. The lower the asset turnover ratio, the more it means that the company is inefficiently working. So this is another dimension which we observe using this concept of asset turnover ratio. We consider three types of asset turnover ratios in our analysis. The first one is the receivable turnover ratio. The second is inventory turnover ratio and the third is the asset turnover ratio. So these three ratios from a different perspective give us information about efficiency of a firm which is important for the creditors, for all stakeholders, for investors to know whether they should invest in this or not or if the company is doing its own analysis of its turnover ratios, so it will assume that where it needs to do better, how can it do better efficiency. So the first concept I am going to discuss with you is the concept of receivable turnover ratio. So you saw that any business company does not have immediate payments there. So payments, for that you give an allowance for the creditors that you make payments, take our stuff or we are going to take some stuff from you and we will do your payment later. For that usually 30 days to 60 days or 90 days is given the time. So if you have sold someone's stuff and you have a buyer, he has asked for 30 days for payment. If you take that payment in 30 days, that money will come to you and you can use it. If more than 30 days the client has the money, he did not pay you and you did not take that money back. So this means that you have given it a loan on the zero interest rate. So as much as the delay will come from you to take that payment back, this is an inefficiency or this is not a good thing for your firm that after 30 days or 60 days, you can use that payment for any purpose, to give salary to the employees or to pay rent or for any other purpose. You did not take that, you did not have the money, so that tells you how efficient or inefficient you are as a company. So therefore, this is an important aspect that accounts receivable ratio tells you how quickly or how delayed you are taking the money from the accounts that are receivable which you want to get. So in terms of the proper definition, we can define this particular term as the value which is again a ratio and it basically is the value ratio obtained by dividing the value of net credit sales by the average accounts receivable or when I say average accounts receivable, it means that in the beginning analysis time period, for example, if it is a year, so you have to take the value of the accounts receivable in January, in December, in the same year in December, you have to consider the value of the accounts receivable and then you will calculate its average and from net credit sales, this particular average and the value of the net credit sales will be divided by this particular value, so the value you will get will give you the value for the receivable turnover ratio and the bigger the value, the more efficiency it will show, which means that the value of your denominator as compared to net credit sales was small, so you have a big value, so this means that your sales are about the same as your accounts receivable or sales, net credit sales are bigger than your average value of accounts receivable, so your receivable turnover ratio will be large. So I will give you an example here, these values that you are seeing in this example have been taken from the company ABC's balance sheet, which I showed you earlier when we discussed the concept of balance sheet, how to make a balance sheet, for that we took a hypothetical company, so we have taken these values from the balance sheet, again beginning of the time period, the analysis we are doing at the time period, the value of accounts receivable was $50, end of that time period, the value of accounts receivable was $60, you took its average, sum it up and divided it by 2, you took the value of net credit sales, you calculated the average value of it, so you took the ratio, that turns out to be 3.6, is the value for the receivable turnover ratio and when we are trying to interpret what these values are, what these values are, what do they mean, so we see that companies who have accounts receivable delayed, they don't take them back, this means that they are extending the loan over zero interest and are causing harm to themselves, and if a company generates a sale to a client, usually we see that this particular sale's payment can be extended to 30 or 60 days, this means that for any product, for payment, you are providing the client 30 to 60 days on average, but if you don't take the receivable and the time period is more than this, this means that you are not operating your company efficiently and that shows how efficient or inefficient you are in running the affairs of the company.