Average collection period

The ratio of accounts receivable to average daily sales. Businesses that invoice for services might have an average collection period whereas a retail outlet probably would not.

Current Ratio

Current assets divided by current liabilities. This is a measure of solvency of a business.

Quick Ratio

This ratio measure short-term solvency. It is the ratio of the most liquid of current assets (usually cash) to current liabilities.

Working Capital Ratio

The ratio of current assets to current liabilities. A company needs a positive working capital ratio to remain solvent.

Return on Sales

Also known as profit margin. The ratio of net income to sales.

Invoicing with Xero

The reason you are in business is to get paid, and hopefully get paid quickly.  Xero makes it very easy to invoice your clients and get paid. Invoices are very easy to create.  It is not necessary to create the client first, though it is helpful.  The invoice screen looks like this: You enter who

Return on Investment

The amount of profit earned by a business that could be paid to the owners/shareholders. This is calculated by profit divided by average investment during the fiscal period.

Return on Equity

Net income divided by stockholder’s equity. This evaluates the return earned based in comparison to investment. It is useful in evaluating the value of the investment to the stockholder.

Return on Assets

The ratio of net income (or operating income) to total assets; net income divided by total assets. This ratio is used to evaluate whether a reasonable return has been earned on the assets in business control. It is one way of evaluating the effectiveness of business practices.

Asset Turnover

The ratio of revenues to total assets. It is a measure of the ability of a company to use its assets to sell its products or services. A company with a high asset turnover is more effective in using its assets than one with a low asset turnover.