Advanced Asset Usage
The advanced equations for this section are:
| Fixed Asset Turnover | = | Turnover |
| Fixed Assets |
| Current Asset Turnover | = | Turnover |
| Current Assets |
| Capital Employed Turnover | = | Turnover |
| Equity Shareholders' Funds |
| Working Capital Turnover | = | Sales |
| Working Capital |
Look at this as we try to unravel the more involved aspects of asset usage or turnover:
| Vodafone plc | 31 Mar 2002 | 31 Mar 2001 |
|---|---|---|
| Consolidated balance sheet | £m | £m |
| Fixed assets | ||
| Intangible Assets | 105,944 | 108,853 |
| Tangible assets | 18,541 | 10,586 |
| Investments | 28,977 | 34,769 |
| Total Fixed Assets | 153,462 | 154,208 |
Look where the growth in assets is taking place - intangible assets. These intangible assets seem to have appeared between 1999 and 2000 and are probably the reason for such a dreadful total asset turnover ratio. Incidentally most of the intangible assets are goodwill, by the way. For the sake of argument, if we assumed that the goodwill had been around £100 million since it first appeared and then recalculated the total asset turnover ratio, we would find:
| Vodafone plc | 2002 | 2001 | 2000 | 1999 | 1998 |
|---|---|---|---|---|---|
| Adjusted Total Asset Turnover Ratio | 0.36 | 0.21 | 0.15 | 0.91 | 0.96 |
Making this adjustment makes a difference and it helps us to understand the underlying trend in the total asset turnover ratio; and taking goodwill into account in the way we have is the kind of adjustment that a financial analyst might make were he to look at Vodafone's financial statements.
Source:
http://www.bized.co.uk/
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