A list of ways to improve ALL the ratios?

[soldier_on16]

Efficiency:
Stock t/o: Reduce avg stock by discontinuing slow moving lines; introduce 'just in time' purchasing of stock'; imrpove stock mix by introducing fast moving lines
Debtors t/o: Improved invoicing procedurces, that is monthly to weekly; imrpoved follow up procedures for overdue accouts; tightening credit approval procedures
Asset T/o: sell rid of obsolete assets; use assets more efficiently to generate sales;
Creditors T/o: ..... MIND BLANK

Anybody like to take a punt at profitability and/or liquidity improvements? Good brainstorming session

[soopertaco]

doesn't Efficiency encompass stock, debtors, creditors and asset turnovers?

[soldier_on16]

Yeah, but what are the methods to improve each individual ratio? Anybody wanna have a go at profitability ratios or liquidity?

[Anon123]

cto: generate cash faster, decrease number of purchases by making smaller more frequent purchases

[24309]

Improve net profit by improving gross profit ratio, in other words moer adequate mark up on stock sold. Also by better management and control over expenses.

Improve GP ratio through more adequate mark up either higher sp when cp is constant or cheaper cp through different supplier or maybe buy in bulk for cheaper stock.

R.O.A improve my using assets more effective in earning and generating profit. Maybe by removing inneffective NCA's or investing in more effective ones. Also by increse in NP.

R.O.I improves by increase in NP by managing expenses etc or decrease in captial...using investement more effectively.

Remember to consider NP ratio and return on assets when talking about asset turnover too

[soldier_on16]

If you were to answer a theory question like "How could you improve net profit ratio" could you respond with something like "By improving gross profit ratio by means of increasing the mark up applied to stock, this will cause net profit ratio to appreciate as well"?

[Anon123]

If you were to answer a theory question like "How could you improve net profit ratio" could you respond with something like "By improving gross profit ratio by means of increasing the mark up applied to stock, this will cause net profit ratio to appreciate as well"?

improve expense control for NPR, keep it simple

[soldier_on16]

Would 'increased advertising to generate greater volumes of sales" be appropriate for improving asset T/O?

[abzzzz]

Whenever i see return on assets and return on  owners investment, whats the first thing i should think about? do they both link to net profit?

[soldier_on16]

Yeah both have net profit as a numerator, so anything that increases np will increase the ratio.

[soopertaco]

net profit ratio increases by generating more sales or controlling expenses more effectively.
in terms of generation of sales you could have a few different responses:
Increase mark up while keeping cost price constant, decreasing mark up while keeping cost price constant, an advertising campaign, improvement of stock mix to improve suitability to customer, etc

controlling expenses could fall under COGS:
- stock loss
-cost of sales
to control these mgmt may seek a cheaper supplier. Also mgmt may also investigate the reason for stock loss and may implement security measures, train staff for stocktaking methods, etc

in terms of other expenses:
wages
advertising
etc
etc

these are subjective to the question but i normally say an investigation in the increase of expenses may be undertaken by mgmt to find the problem area and take necessary remedial action.

[soldier_on16]

"Increase mark up while keeping cost price constant, decreasing mark up while keeping cost price constant" don't they contradict each other though?

[soopertaco]

"Increase mark up while keeping cost price constant, decreasing mark up while keeping cost price constant" don't they contradict each other though?

It's either one or the other. see if you descrease the mark up, you potentially attract more sales! cmon man mr. rank 1 economics you should know this by now!

and on the other hand if you increase mark up while demand drops, people still buy and hence your sales increase regardless. You get what I mean now?

[Anon123]

Just want to stress this guys, keep it simple, assessors aren't pushing for crazy responses or anything - even with simple explain why ROA can increase while ATO decreases 60% or so get 0....

[soldier_on16]

My teacher: "Don't incorperate business management or economics type answers"

Sees text book: "Improved economic conditions"

Me: >.<