Study Sheet of Asset Management Ratios

Posted by Professor Cram in Ratios of Asset Management

Finance Terms

  • Accounts Receivable is what customers owe the business for products purchased but not paid for. It can be found on the balance sheet as a current asset.
  • An Asset is any ‘thing’ a business can own. Buildings, equipment, and vehicles are examples of assets that can be depreciated, while cash, bonds, and inventories are assets that are not depreciated.
  • Amortization is essentially depreciation for intangible assets (like oil wells, goodwill, etc.)
  • Depreciation is the reduction in value of an asset over the course of its useful life. It can be calculated in several ways.
  • Fixed Assets is the name of all assets that are not to be liquidated within one year. It can be found on the balance sheet in the assets section.
  • Inventory is the amount of finished product available for sale. It can be found on the balance sheet in the current assets section.
  • Net Fixed Assets is the total of all fixed assets less accumulated depreciation. It can be found on the balance sheet in the assets section.
  • Sales is the revenue from products or services sold. It can be found on the income statement.
  • Total Assets is the sum of current assets (like cash), fixed assets (such as buildings), and other assets (i.e., goodwill). It can be found on the balance sheet as “Total Assets.”
  • Total Debt is the combined amount of current liabilities and long-term liabilities. It can be found on the balance sheet as “Total Liabilities.”

Days Sales Outstanding (DSO)

  • Days Sales Outstanding (DSO) indicates how well receivables are managed.
  • Given the sales from a company’s income statement and accounts receivable from the balance sheet:DSO = (Accounts Receivable) / (Average sales per day)
  • Generally, the higher the ratio, the more potential for problems in getting paid.

Fixed Asset Turnover (FAT) Ratio

  • The Fixed Asset Turnover Ratio measures how fixed assets are used to generate sales.
  • Given sales from a company’s income statement and net fixed assets from the balance sheet:Fixed Asset Turnover Ratio = Sales / (Net Fixed Assets)
  • Generally, the higher the ratio, the more sales the company is able to generate from its fixed assets, and thus the more efficient the firm’s production.

Total Assets Turnover Ratio

  • The Total Assets Turnover Ratio compares sales to total assets.
  • Given sales from a company’s income statement and total assets from the balance sheet:Total Asset Turnover = Sales / (Total Assets)
  • Generally, the higher the ratio, the more sales are achieved from the company’s assets.

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