More rigorous measure of short-term liquidity. Indicates a firms ability to meet unexpected demands. Receivables Turnover Measures effectiveness of collections. Used to evaluate whether receivables balance is excessive. The collection period should be less than the credit terms.
Inventory Turnover Indicates liquidity of inventory.
Inventory with a high turnover is less likely to be obsolete. Very high turnover indicates insufficient stock. Ability to continue operations in the long-term. Extent of Gearing. Rough rule of thumb, firm should earn 3 to 4 times interest requirement.