asset utilization ratios ratios that measure how wella firm uses its assets to generate each $1 of sales receivables turnover sales divided by accounts receivable Inventory turnover sales divided by total inventory total asset turnover sales divided by total assets. ENVIRONMENTAL REPORTING: IT'S NOT EASY BEING GREEN tion to take a large step toward increas half report environmental data. implications for the possible development of ing environmental reporting. However, the Attracting for appeasing investors is one generally accepted accounting principles for energy giant has started disclosing the value of the largest drivers of this trend. However, sustainability concems. of its stranded assets. These assets, includ companies are also seeing the benefits of pro ing some ol and gas fields, come with a high moting sustainability. Thanks in part to more Discussion Questions environmental price and have the potential extreme weather in recent years, some com 1. Should companies include environmen to be left unused if tougher environmental panies are integrating sustainability into their tal costs, or stranded assets into their regulations are passed. While the release of business Strategies. Companies like UPS are accounting statements? this information may seem contradictory to also looking for sustainability initiatives the 2 Why do you think more than half of the firms the company's mission, this is one of the most are tied closely to their business objectives to isted on the 31 largest stock exchanges recent examples in a growing trend toward capitalize on core competencies. A research report environmental data? more open green reporting. According to the study showed that firms that focused on en 3. What might be some advantages to report CDP-a group that gathers environmental ronmental and sustainability issues typically ing and monitoring environmental costs? data for shareholders-of all the firms listed had higher share prices and earnings. This Asset Utilization Ratios Asset utilization ratios measure how well a firm uses its assets to generate cach $1 of sales. Obviously, companies using their assets more productively will have higher returns on assets than their less efficient competitors. Similarly, managers can use asset utilization ratios to pinpoint areas of inefficiency in their operations. These ratios (receivables turnover, inventory turnover, and total asset turnover) relate balance sheet assets to sales, which are found on the income statement The receivables turnover, sales divided by accounts receiv able, indicates how many times a firm collects its accounts receivable in one year. It also demonstrates how quickly a firm is able to collect payments on its credit sales. Obviously no payments means no profits. Microsoft collected its receiv ables 4.67 times per year, which translates to about 77 days that receivables are outstanding. This is most likely due to the trade terms it gives its corporate customers. Sales Receivables turnover = Receivables $85,320 S18.277 -4.67 times per year Inventory turnover, sales divided by total inventory, indi- cates how many times a firm sells and replaces its inventory over the course of a year. A high inventory turnover ratio may indicate great efficiency but may also suggest the possibility of lost sales due to insufficient stock levels. Microsoft's inventory turnover indicates that it replaced its inventory 37.90 times last year, or about every 9.5 days. This high inventory turn- over is a reflection that Microsoft has very little physical inven- tory and instead downloads its Windows programs over the Internet. Sales Inventory turnover Inventory $85,320 $2.251 = 37.90 times per year Total asset turnover, sales divided by total assets, measures how well an organization uses all of its assets in creating sales. It indicates whether a company is using its assets productively. Microsoft generated $0.44 in sales for every $1 in total corpo rate assets. The cause of this low total asset turnover is the large cash balance that Microsoft has on its balance sheet. Cash does not produce sales dollars