Activity-Based Financial Ratio: Total Assets Turnover

June 9th, 2006 Comments off
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Continued from my last article, we now look at the financial ratio for assessing the Activity of assets deployed by the company.

Essentially, the Activity ratios are able to measure the efficiency of managing or using of assets like:-

  •  total assets.

  •    accounts receivable,

  •  inventory,

  •   accounts payable, and

 

 

TOTAL ASSETS TURNOVER:

FORMULA

Net Sales / Total Assets ( or average ) or Accounts Receivable, Inventory

MEASURE WHAT

Measure the efficiency of the usage of total assets in generating sales

SCORE/VALUE

Varies.

The higher is the more effective

SALIENT POINTS TO NOTE

Comparing similar periods and similar industry statistics determines measures of efficiencies by which the assets are employed in the business.

This asset utilization ratio forms part of a larger ratio of the Total Return On Assets(ROA) where the quicker the utilization of the total assets means that the enterprise can generate faster returns.

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Financial Accounting

 
 

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