Discuss the meaning of these ratios and their relevance compared to industry standards.

The inventory period, accounts receivable period, and average payment period are metrics used to measure a company’s liquidity. Divide the price of items available for purchase by the average daily cost of sale to calculate the inventory period. This metric measures the speed at which a company can sell their products and turn them into money.

Accounts receivable period measures how long it takes on average for customers to pay their outstanding invoices after they have received product or services , thus indicating days taken for an organization’s credit sales to be collected . The Average Payment Period is the amount of time it takes for a company to pay its suppliers’ bills from when they are due to actually paying them.

The ratios provide valuable information about the cash flow of an organization, which helps them make better decisions on resource allocation and budgeting. These figures can be compared to industry standards, which allows companies to compare their performance with other firms in the same field and adjust accordingly.

Measurement of liquidity by using accounts receivables periods, inventory periods, and average payment periods helps businesses gain a better understanding their financial position, enabling them to improve decision-making capabilities, while also ensuring funds are effectively managed across departments in any enterprise.