David Harkins

David Harkins

Dr. David L. Harkins is a social scientist researching the human experience in systems and culture. He is an experienced executive coach and consultant, passionate educator, and keynote speaker. Through his teachings, inspiration, and guidance, he helps individuals and organizations identify and connect with their potential to make a meaningful difference in their communities.

Calculating Efficiency Ratios

Efficiency Ratios provide additional insights into business operations. These are useful in helping an investor or lender spot key problem areas related to inventory management, cash flow, and collections.

These ratios include:


The Inventory Turn-Over Ratio measures how long it takes for inventory to be sold and replaced during a period (typically a year.) The formula is as follows:

Inventory Turnover = Cost of Goods Sold/Average Inventory*

The longer inventory sits on the shelf, the more it costs the company because gross profit is not realized from the sale. Sales and inventory management are key measures for investors.

*Average Inventory = (Beginning Inventory+Ending Inventory)/2



The Average Collection Period Ratio measures the average number of days customers take to pay for products or services. The formula is as follows:

Average Collection = Account Balances for the Year/Net Sales for the Year

A short average collection period compared to industry standards is preferred by investors.

If you would like to learn more about Financial Ratios and how they may be used, read the post, Financial Ratio Analysis and the Entrepreneur.




Rogers, S. (2014). Entrepreneurial Finance: Finance and Business Strategies for the Serious Entrepreneur. New York: McGraw Hill Education.

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