Analysis of Financial Statements: Asset Management Ratios

Analysis of Financial Statements: Asset Management Ratios

Asset management ratios are important $-$ firms need to manage assets efficiently because capital obtained to acquire those assets is expensive. These ratios include the:

restocked. Its equation is:

Inventory turnover ratio $=\frac{\text{C}\text{o}\text{s}\text{f}of\text{G}\text{o}\text{o}\text{d}\text{s}\text{S}\text{o}\text{l}\text{d}}{\text{I}\text{n}\text{v}\text{e}\text{n}\text{t}\text{o}\text{r}\text{i}\text{e}\text{s}}$

Excess inventory is unproductive and represents an investment with a

$($DSO$)$ ratio is also called the average collection period $($ACP$).$ Its equation is:

rate of return. An alternative definition of the inventory turnover ratio replaces sales in the $n$

DSO$=$ Days Sales Outstanding $=\frac{\text{R}\text{e}\text{c}\text{e}\text{i}\text{v}\text{a}\text{b}\text{l}\text{e}\text{s}}{\text{A}\text{v}\text{e}\text{r}\text{a}\text{g}\text{e}\text{s}\text{a}\text{l}\text{e}\text{s}\text{p}\text{e}\text{r}\text{d}\text{a}\text{y}}=\frac{\text{R}\text{e}\text{c}\text{e}\text{i}\text{v}\text{a}\text{b}\text{l}\text{e}\text{s}}{\text{A}\text{n}\text{n}\text{u}\text{a}\text{l}\text{s}\text{a}\text{l}\text{e}\text{s}\frac{?}{365}}$

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 changed, this

Fixed assets turnover ratio $=\frac{\text{S}\text{a}\text{l}\text{e}\text{s}}{\text{N}\text{e}\text{t}\text{f}\text{i}\text{x}\text{e}\text{d}\text{a}\text{s}\text{s}\text{e}\text{t}\text{s}}$

There can be problems interpreting this ratio due to

particularly when an older firm is compared with a newer company. The total assets turnover ratio measures how

Total assets turnover ratio $=\frac{\text{S}\text{a}\text{l}\text{e}\text{s}}{\text{T}\text{o}\text{t}\text{a}\text{l}\text{a}\text{s}\text{s}\text{e}\text{t}\text{.}s}$