free site statistics
Saturday , June 3 2023
Home / Accounting and Business / Asset Management Ratios (Efficiency Ratios)

Asset Management Ratios (Efficiency Ratios)

 

In this article, we discuss Asset Management Ratios. Asset Management Ratios also call as Efficiency Ratios. These ratios are one type category of financial ratios.

What are the asset management ratios?

Asset management ratios measure how well companies utilize their assets to generate income. The management uses these ratios to help improve the profitability of the company. Also, outside investors and creditors look at the profitability of the company’s operations by using these ratios.

What are the types of Asset management ratios?

  • Average Collection Period
  • Inventory Turnover Ratio
  • Cash Conversion Cycle
  • Fixed Asset Turnover Ratio
  • Total Assets Turnover Ratio
  • Working Capital Turnover Ratio
  • Receivable Turnover Ratio
  • Payable Turnover Ratio

Average Collection Period

The average collection period indicates the average number of days elapsed between a credit sale and the date the company receives the payment from the credit sale.

The formula of the average collection period:

A short average collection period suggests a tight credit policy and effective management of accounts receivable. A long average collection period indicates that the company should tighten its credit policy and improve the management of accounts receivable.

Inventory Turnover Ratio

The inventory turnover ratio shows how effectively inventory is managed by comparing the cost of goods sold with the average inventory for a period. This measures how many times the average inventory is turned or sold during a period. Higher revenue with less working capital is a more desirable feature to investors.

The formula of the inventory turnover ratio:

If larger amounts of inventory are purchased during the year, the company will have to sell greater amounts of inventory to improve its turnover. This measurement shows how easily a company can turn its inventory into cash.

Cash Conversion Cycle

The cash conversion cycle uses to measure the time it takes a company to convert its investment in inventory and other resource inputs into cash. It measures how long cash is tied up in inventory before the inventory is sold and cash is collected from customers.

The formula of the cash conversion cycle:

A smaller or shorter cash conversion cycle is almost always good. A small conversion cycle means that a company’s money is tied up in inventory for less time.

Fixed Asset Turnover Ratio

The fixed asset turnover ratio measures a company’s return on its investment in property, plant, and equipment by comparing net sales with fixed assets. Investors and creditors use this formula to understand how well the company is utilizing its fixed asset to generate sales. Higher fixed asset turnover is more favorable to the company

The formula of the fixed asset turnover ratio:

Fixed Asset Turnover Ratio

The fixed asset turnover ratio measures a company’s return on its investment in property, plant, and equipment by comparing net sales with fixed assets. Investors and creditors use this formula to understand how well the company is utilizing its fixed asset to generate sales. Higher fixed asset turnover is more favorable to the company.

The formula of the fixed asset turnover ratio:

Working Capital Turnover Ratio

This ratio uses to understand how effectively the company utilizes its implied working capital to produce revenue. According to the investor’s perspective, a higher value of working capital is desirable due to it indicates enhanced efficiency.

The formula of the working capital turnover ratio:

Receivable Turnover Ratio

This ratio uses to assess the efficiency of the collection function. Here, a higher value of the receivable turnover ratio aids to understand that the business has quality customers that pay their debt on time. Also, a lower receivable turnover ratio shows inefficient funds collection, the inadequacy of credit policy, and problems with the financial status of the customers.

The formula of the receivable turnover ratio:

Payable Turnover Ratio

The payable turnover ratio uses to assess the performance of the business in terms of working capital management. However, this is not related directly to the asset management ratio. A higher value of payable turnover ratio indicates that the business is successfully managing the cash flow. A lower ratio indicates that the company takes greater time to pay off its obligations.

Additionally, stakeholders of the business can identify that the business is efficiently managing its suppliers through this ratio.

The formula of the payable turnover ratio:

 

 

Improve Your Health

  • How Green Tea affect to improve your Health

    This is the Health Knowledge Lankatricks provide you. Under the Health Calgary we try to discuss various area about improve your Health. This Post discuss about Green Tea and How it effect for your health.

Knowledge

  • Benifits Of Free Website Building Tools

    The internet is becoming a bigger. It’s an important platform used to access anything and connect with others. Websites are the way to gain presence online and with the boom witnessed, website building has become

  • United Kingdom exit from the European Union-BREXIT

    What is the European Union? This is a politico-economic union. It has 28 member states that are located primarily in Europe. It has an area of 4,324,782 km and an estimated population of European Union

  • How to Find a  Reliable Web Hosting Service

    When Getting a decision to making same website one of impotent thing is finding a good and reliable web hosting service. To find a reliable web hosting service should consider about many factors. before baying

  • Software Engineering Basic Lesson

    Software Engineering In this we can learn basic concepts and theories about software Engineering in brief.This Lesson will help for Advanced level IT Subject and also People who like to Start learning Software Engineering.  

  • Link Building, Backlink, The Benefits Of Building Links – SEO 2018 New

    Link Building When considering search engine optimization link building is the one of major part it. In this guide of Lankatricks you can learn about what the link building is and How it is affected

  • Introduction to Electronics – Electronics Definition

    In this tutorial you can learn basic definitions about electronics Such as Electronic, Active Devices, Passive Devices,Current, Direct Current,Alternating Current, Frequency, Voltage, Resistance etc. Definition of Electronics Electronics is the branch of science that deals

  • Fundamental Insurance Equation – Actuarial Techniques Part 03

    This is the third lesson of actuarial techniques. This part also discuss another terms of Fundamental Insurance Equation. if you don’t read second parts of this lesson. you can learn by using following link. The

– The things we publish in this website are relating to the job information and information relating to the professional courses, which are extracted from various sources such as various newspaper advertisement,circulars and Various websites. The right of these information belongs to the first owner of the information. If any alteration happen these information, we don’t take the responsibility arising arising from such alteration. Instead, what we do is to inform you as quickly as possible regarding the information related to the job opportunities and model applications and professional courses. as well as we allow you to gain essential knowledge related knowledge related for the competitive exams.