The study of the company uses for a comprehensive analysis of many methods. The asset turnover ratio allows us to assess the situation not from the position of profit, but from the point of view of the intensity of turnover and sales.
general characteristics
The concept of asset turnover ratios refers to the assessment of business activity. They are calculated for both short and long term.
The calculation of the turnover ratio of current and non-current assets shows how correctly the company uses its available resources. Regardless of the sources of education (equity or borrowed capital), the asset turnover ratio expresses the number of times that production and sales will be performed in the reporting period. In other words, the presented indicator provides information on how many sold products each unit of assets could provide.
An increase in asset turnover ratio, the formula of which will be considered later, will talk about effective capital management.
Calculation formula
The asset turnover ratio, the formula of which is presented below, uses such absolute indicators as the volume of assets, sales of finished products, own profit (capital). General type of calculation looks like that:
KOA = Revenue from sales / Average annual balance sheet currency.
The parameters used for the calculations are compared in relation to certain periods.
The average annual value of assets is calculated by adding the balance sheet currency at the beginning and end of the year, followed by dividing the result by two.
The asset turnover ratio, the formula of which was presented above, is calculated according to Form No. 1 of the financial statements. Its appearance will be as follows:
KOA = s.2110 / (s.1600 beginning + s.1600 end) / 2, where:
- beg. - indicator line 1600 balance at the beginning of the period;
- con. - indicator line 1600 balance sheet at the end of the analyzed year.
Turnover period
Another clear expression of asset turnover ratios, showing the efficiency of capital use, is the period of turnover of the balance sheet currency. 
This analysis allows you to determine the number of days for which the entire cycle of converting used resources into cash takes place.
This is the inverse of the turnover ratio. It is multiplied by the length of the period. The asset turnover ratio expressed in days indicates the duration of the full cycle of funds. It is calculated by the formula TABOUT = 365 / KABOUTwhere:
- TABOUT - period of turnover, days.
- KABOUT - asset turnover ratio.
A decrease in this indicator is a positive sign that allows the company to quickly earn profits from its activities.
Normative
The considered indicator does not have normative value. Its analysis should be carried out in dynamics. The value of the turnover ratio depends on the business sector in which the organization operates.
Asset turnover ratio shows how effectively the company management manages its available resources. Therefore, this indicator should take into account the correct ratio of some other indicators. Their optimum ratio should be of the form:
- Net income growth rate> Rate of increase profit from sales> Growth rate of net assets> 100%.
This suggests the need for a faster increase in profits, for which costs should be minimized, and assets should be used as efficiently as possible.
Turnover by sections of the balance sheet
For the components of the balance sheet currency, the corresponding values are calculated similarly. Turnover ratio fixed assets makes it clear how quickly the immobile property of the organization turns around. The formula for calculating this indicator is as follows: KNA = BP / ONwednesday Where:
- BP - revenue from sales;
- ONwednesday - the average value of fixed assets.
Similarly, according to the above formula, the turnover period is calculated.
The turnover Ratio of current assets makes it possible to assess the turnover of mobile funds of the company and is calculated according to the formula KOA = BP / OAwednesdaywhere:
- BP - revenue from sales;
- OAwednesday - the average value of current assets.
The acceleration of this indicator indicates a competent financial policy of the enterprise management.
Current assets
For the analysis of turnover is important consideration of each position of the II section of Form No. 1 of the accounting report. The turnover ratio of current assets should be considered in the context of the cyclical conversion of cash, stocks, debt of debtors.
The rate of return of funds for goods sold on credit is calculated as follows: KDLD = PR / DZwednesday. Where:
- PR - profit from sales.
- DZWednesdays - the average annual indicator of receivables.
The turnover ratio of current assets in terms of stocks shows how quickly the sale of goods stored in the company's warehouses proceeds. The formula is:
TOOz = BH / Wwednesdaywhere
- BH - net income;
- 3Wednesdays - the average annual value of stocks.
An increase in the indicator indicates overflow of warehouses with finished products. Its decrease indicates the acceleration of its implementation. Too large a decrease in the relative value indicates a depletion of reserves and requires replenishment.
The turnover ratio of current assets is also evaluated from the position of capital intensity. It is calculated as follows: KSLM = PR / DSwednesdaywhere:
- PR - profit from sales.
- DSWednesdays - the average annual value of cash.
This indicator shows how many times in the analyzed period the money went through the cash desk and accounts of the company.
Influence factors
The duration of asset turnover is affected by a number of factors, both external and internal origin.
The asset turnover ratio externally depends on such effects:
- area of production of the company;
- belonging to a certain industry;
- the scope of the company.
A rather serious effect on turnover is exerted by macroeconomic factors of the operating environment. Adverse conditions lead to the accumulation of stocks and a slowdown in the cyclical nature of their conversion to monetary equivalent.
Internal factors are the company's pricing policy, asset structure, as well as methods for assessing reserves.
By familiarizing yourself with such a concept as the asset turnover ratio, you can conduct a competent, consistent assessment of the business activity of an enterprise, identify and eliminate possible causes of insufficient intensity of transferring company funds into cash. The expediency of its activities depends on this. Every self-respecting analyst should use the presented type of analysis to identify obstacles to the growth of the organization.
