Financial Ratio Analysis - Advanced Asset Usage

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/