Ratio Analysis 3: Working Capital Management 1: Liquidity

Asset Usage

The assessment of asset usage is important as it helps us to understand the overall level of efficiency at which a business is performing.

The basic equations for this section are:

Total Asset Turnover	=	Turnover
		Total Assets

Stock Turnover	=	Average Stocks
		Credit Sales/365

Debtors' Turnover	=	Average Debtors
		Credit Sales/365

Creditors' Turnover	=	Average Creditors
		Credit Sales/365

The assessment of asset usage is important as it helps us to understand the overall level of efficiency at which a business is performing.

Our basic ratios for this section are

Total asset turnover - The overall efficiency of the business. We will look at total asset turnover and net asset turnover; then we will investigate the fixed and current asset turnover ratios.

Stock turnover, Debtors' turnover and Creditors' turnover help us to assess the liquidity position as well as giving us detailed information about stock control and credit control.

We'll look at total asset turnover first and then we'll look at the other three together, under the general heading of working capital management II.

Source:
http://www.bized.co.uk/

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