6. 3; Analysis of Financial Statements: Asset Management Ratios Asset management ratios are important - firms need to manage assets efficlently because capital obtained to acquire those assets is expensive. These ratios indude the: (1) Inventory tumever ratio, (2) Days sales outstanding, (3) Fixed assets turnover, and (4) Total assets turnover. The inventory turnover ratio indicates hew many times during the ye inventory is and restocked. Tts equation is: Investoryturnoverratio=InventoriesSales Excess inventory is unproductive and represents an investment with a rate of return. An alternative definition of the inventory turnover ratio replaces sales in the numerator with . The rationale for this measurement is that inventory is carried at cost, so sales in the numerator overstates the true inventory turnover rato. The days sales outstanding (DSO) ratio is also called the average collection period (ACP), Its equation is: DSO=Dayssalesoutstanding=AveragesalesperdayReceivables=Annualsales/365Receivables The DSO can also be evaluated by comparison with the terms on which the firm its goods. If its trend has been rising and policy has not charged, this would indicate a need to speed up the coliection of recelvables. The fixed assets turnover ratio measures how effectively the firm uses its plant and equipment, Its equation is: Fixed assets turnover ratio =NetfixedassetsSales There can be probiems interpreting this ratio due to porticularly when an older firm is compared with a newer company. The total assets tirnover ratio measures how effectvely the firm uses ins total assets and whether the firm generates enough sales given its total assets. Its equation is: Totalassetsturnoverratio=TotalasetsSales