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:-
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total assets.
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accounts receivable,
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inventory,
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accounts payable, and
TOTAL ASSETS TURNOVER:
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FORMULA |
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Net Sales / Total Assets ( or average ) or Accounts Receivable, Inventory |
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MEASURE WHAT |
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Measure the efficiency of the usage of total assets in generating sales |
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SCORE/VALUE |
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Varies. The higher is the more effective |
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SALIENT POINTS TO NOTE |
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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. |