Discuss the significance and shortcomings of the following in relation to FMCG business: (ii) Efficiency Ratio

(ii) Efficiency Ratios: These ratios give investors insight into how efficiently a business is employing resources invested in fixed assets and working capital. It's can also be a reflection of how effective a company's management is. a) Asset Turnover Ratio: What you need: Income Statement, Balance Sheet The formula: Asset Turnover Ratio = Sales / Average Total Assets What it means: The asset turnover ratio tells how good the company is at using its assets to make products to sell. For example, if Company A reported $100,000 of sales and owns $50,000 in assets, its asset turnover ratio is 2x. For ever $1 of assets it owns, it can generate $2 in sales each year. b) Inventory Turnover Ratio: What you need: Income Statement, Balance Sheet The formula: Inventory Turnover Ratio = Costs of Goods Sold / Average Inventory OR Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory What it means: If the company you're analysing holds has inventory, you want that company to be selling it as fast as possible, not stockpiling it. The inventory turnover ratio measures this efficiency in cycling inventory. By dividing costs of goods sold (COGS) by the average amount of inventory the company held during the period, you can discern how fast the company has to replenish its shelves. Generally, a high inventory turnover ratio indicates that the firm is selling inventory (thereby having to spend money to make new inventory) relatively quickly