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Cash Turnover Ratio

 

Cash turnover ratio compares company’s sales to its cash and measures how effectively company is using cash assets. However, this financial ratio now is a bit outworn and is not very meaningful for most of the companies. Yet, it can be applied to those companies that use cash in their day-to-day operations when cash is a part of working capital

 

But this ratio might mislead if it will be used for other companies that accumulate cash for various reasons. Cash management in these days is different when companies have credit accounts and there is no need urgent to accumulate cash for daily operations while credit can be used. Yet, most of the companies still accumulate some cash for safety or other reasons (read about those by reading about ‘cash ratio’).

 

Cash turnover ratio formula


Cash turnover ratio = Sales / Cash


Cash turnover ratio = COGS / Cash

 

* Some use sales revenue some use COGS (cost of sales) while others from COGS additionally exclude depreciation. Basically, it should depend on the goal of the analysis. 

 

 

 






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