Asset Turnover Ratio

The business activity of a commercial organization is measured using a system of qualitative and quantitative indicators. Due to the coefficient of business activity, it is possible to analyze how efficiently the funds are used by the enterprise itself. Analysis is understood as the study of the dynamics and levels of financial ratios of turnover.

In the role of qualitative criteria are the business reputation of the firm, the breadth of the sales market, the competitiveness of the firm, the availability of suppliers and a constant market for the sale of finished products. These criteria can be compared with similar indicators of competitors that operate in the industry. Information can be taken from marketing research and accounting.

As quantitative indicators of business activity , relative and absolute indicators are allocated. These quantitative parameters should be compared in dynamics over a number of periods. All coefficients are expressed in times, and the period of turnover in days. For the organization, these indicators are very important. The amount of annual turnover depends on the size of the annual turnover. The relative magnitude of production costs is associated with turnover. The financial position of any company depends on how soon the funds that are invested in assets will be turned into real monetary assets.

Business activity of the firm is estimated through the use of two groups of indicators: general indicators of turnover, as well as asset management indicators.

To assess how effectively the enterprise uses its resources, regardless of the sources of their receipt, the so-called asset turnover ratio is used. With its help, it is possible to characterize the number of complete production and conversion cycles for which an enterprise can profit.

Asset Turnover Ratio : Calculation Methodology

To begin with, you will need to fill in the company's balance sheet in form # 1. The analysis of turnover is carried out using the 1 and 2 reporting section. It is required to reflect information on intangible assets, construction in progress, fixed assets, inventories, investments, raw materials, receivables and cash. Now you should sum up lines 190 and 290, and then sum and get the balance of the asset reflected in line 300.

Next, you should generate a profit and loss account for the enterprises in form # 2. The asset turnover ratio will be calculated using the value from line 010, which contains information on the company's revenue from the sale of products, works and services. This line is taken to be formed on the basis of accounting as the sum of credits on accounts: 90.1 "Revenue", without taking into account the debit on account 90.3 "VAT", and also 90.4 "Excise".

Now you can get the asset turnover ratio, you can calculate it as the ratio of revenue from sales of goods to the total price of the company's assets. The result of this will be a ratio showing the number of units of the sold goods, which is per unit of assets. After analyzing the result, you can determine the nature of the turnover of funds that are available to the enterprise. The higher this indicator, the more from each unit of the asset price the enterprise receives profits. It is best to calculate this coefficient for each reporting period, then to make a comparative analysis.

In financial analysis, you can also use the degree of return on assets, if you multiply the turnover of assets by the net profit ratio.