Asset Management ratios |
Asset Turn RatioThis method of measuring efficiency in asset usage involves sales volume that can be supported using the existing level of assets. In mathematical terms, you calculate this ratio by dividing annual sales by the value of Assets (both current and fixed). Receivable daysThis measure how long the business to collect what is owed by customers. When people buy on credit, they create what in business terms is called receivables or sales made for which you have not received the money. This amounts also represents future cash inflow into the business. In mathematical terms, this is calculated by taking the receivables value and multiplying it by 365, which represents the number of days per year. You then take this resulting number and divide it by your annual sales. The smaller the number in receivable days the better. A small number means the business is collecting what is owed to it faster, but a big number means the business is taking too long to collect what is owed and that could potentially put a strain on the business’ liquidity or short-term financial strength. Inventory TurnThis method of measuring efficiency in asset usage measures the volume of business that can be conducted with the available level of inventory or stock. Now, note that you carry the inventory that you anticipate to sell, thus if your sales estimates are larger, leading to a larger inventory. Should actual sales slow down you will be left with a lot of unsold stock or inventory. Growing levels of inventory should be a sign of trouble. In mathematical terms, you calculate inventory turns by dividing the cost of goods by the level of inventory |
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