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Various measures can be used to evaluate the success of a company’s operating strategy.

(a). Profit margin, asset turnover, and return on assets are commonly used measures.

(b). The ratio of operating cash flow to assets measures a company’s ability to convert its profits into cash.

(c). Inventory turnover measures a company’s ability to convert its investment in inventory into sales.

(d). Day’s sales in inventories measures the average number of days for a company to sell its total inventory, or how many days’ supply of inventory it keeps on hand.

(e). Accounts receivable turnover measures a company’s ability to convert its credit sales into cash.

(f). Average collection period measures how long it takes a company to collect its receivables.

(g). Fixed asset turnover measures the effectiveness of a company in using its investment in fixed assets to create sales.

(h). Gross profit margin measures a company’s efficiency in the production or purchase of goods for sale.

(i). Operating profit margin measures a company’s efficiency in controlling selling and administrative expenses in addition to its efficiency in controlling product costs.

(j). Return on equity includes the effect of financing in evaluating overall company performance and links operating, investing, and financing activities.

(k). Times interest earned measures the ability of a company to meet its interest requirements.