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3. Asset management ratios Asset management ratios are used to measure how effectively a firm manages its assets, by relating the amount a firm has

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3. Asset management ratios Asset management ratios are used to measure how effectively a firm manages its assets, by relating the amount a firm has invested in a particular type of asset (or group of assets) to the amount of revenues the asset is generating. Examples of asset management ratios include the average collection perlod (also called the days sales outstanding ratio), the inventory turnover ratio, the fixed asset turnover ratio, and the total asset turnover ratio. Consider the following case: Frankin Aerospace has a quick ratio of 2.00x,$36,225 in cash, $20,125 in accounts receivable, some inventory, total current assets of $80,500, and total current liabilities of $28,175. The company reported annual sales of $200,000 in the most recent annual report. Over the past vear, how often did Franklin Aerospace sell and replace its inventory? 8.01x 9.11x 8.28x 2. 86x The inventory tumover ratio across companies in the aerospace industry is 9.108x. Based on this information, which of the following statements is true for Frankin Aerospace? You are analyzing two companies that manufacture electronic toys-Like Games Inc. and Our Play Inc. Like Games was launched eight years ago, whereas Our Play is a relatively new company that has been in operation for only the past two years. However, both companies have an equal market share with sales of $200,000 each. You've collected company data to compare Lke Games and Our Piay. Last year, the average sales for all industry competitors was $510,000. As an analyst, you want to make comments on the expected performance of these two companies in the coming year. You've collected data from the companies' financial statements. This information is listed as follows: (Note: Assume there are 365 days in a year.) Using this information, complete the folsowing statements to include in your analysis. 1. A days of sales outstanding represents an efficient credit and collection policy. Between the two companies; is colecting cash from its customers faster than , but both companies are collecting their receivables less quickly than the industry average. 2. Our Play's fixed assets turnover ratio is than that of Like Games. This could be because Our Play is a relatively new company, so the acquisition cost of its fixed assets is than the recorded cost of Like Games's net fixed assets. 3. Uke Games's total assets turnover ratio is , which is than the industry's average total assets turnover ratio. In general, a higher total assets turnover ratio indicates greater efficiency

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