Sales Backlog Ratio

The Sales Backlog Ratio is a financial measurement of the ability of a business to maintain the current level of the sales of the business. This ratio is recorded on the trend line to find out whether the business is able to maintain the current volume of the sales in the future as well. For example if on the trend line sales backlog ratio shows a decline it is an indicator for the business that sales of business are experiencing a decline as it is going through its backlog without renewing the sales backlog that is resulting in reduction in the sales. In order to calculate the Sales backlog ratio the total value of all the booked orders by the customers are divided by the net income of the past accounting period. Only the sales of past accounting period are used that are usually quarterly based. Yearly based sales are not used in order to reflect the capability of the company to generate revenue in a more efficient way. The formula of Sales Backlog ratio can be shown as under:- Sales Backlog Ratio = Total Order Backlog made by customers/ Quarterly Sales Although Sales backlog ratio helps a lot in calculating the efficiency of the business to generate revenue however it is of little help in the environment where there is no back log such as in retail environment. It is not applicable to the seasonal business as well where the major objective of the business is to sell volume sales in a certain specified period.

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