Improving Assets Turnover Ratio: A Strategic Approach


Added on  2019-09-24

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Running head: Blog writingASSETS TURNOVERAugust 12th, 2019INTRODUCTION TO ASSETS TURNOVERThe concept such as assets turnover ratio is also called by the name of total assetsturnover ratio. In this regard, it can be said that it is the type of ratio that basically measures theefficiency of the company in relation to the assets that it is using for the purpose to generaterevenue. In simple words, it can also be said that assets turnover ratio is being called as theefficiency ratio that examines the ability of the company in the task of generating sales bymaking best use of firm’s assets. In terms of financial accounting, assets are a valuable thing or the person that help thefirm in the task of accomplishing the tactical goals and objectives of the corporation. The assetsare of two types such as current and non-current. The list of current assets includes marketablesecurities, inventory, prepaid expenses, account receivables, and cash equivalent. On the otherhand, non-current assets are further classified into two categories such as tangible fixed assetsand intangible fixed assets. The tangible fixed assets include buildings, furniture, and equipmentetc. Similarly, intangible fixed assets include copyrights and trademarks, etc. Thus, in the respective section detail description will be given regarding the concept suchas assets turnover ratio. Here, the discussion will also be carried out in relation to the wayswith the help of which assets turnover ratio can be improved in an effectual manner. Thediscussion will also be carried out about the main advantages and limitations that are associatedwith the concept of assets turnover ratio in an effectual way. HOW TO CALCULATE ASSETS TURNOVERBefore getting into more details about the assets turnover ratio, it is very muchimportant for the individual that it should gain the idea about the manner with the help of whichassets turnover ratio can be calculated. The formula for the same is given below:1
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Running head: Blog writingHere,Total sales: It is basically the annual sales of the companyBeginning assets: It is the type of assets which is identified at the start of the yearEnding assets: It is being considered as the type of assets which is being assessed at the end ofthe year. Thus, in terms of words assets turnover ratio can be obtained when total sales or therevenue of the company is being divided with an average of total assets. The formula of theassets turnover ratio can be effectively explained with the help of the below-given example. Suppose, the company XYZ garment ltd had a total revenue of around 10 million dollarsat the end of its fiscal year. At the beginning of the fiscal year, recorded total assets were 3billion dollars. On the other hand, at the end of the year recorded assets were 5 billion dollars.Herein, at first we need to assess the average of total assets and this will be calculated in thefollowing way: 3+5/2= 4 billion dollarThus, the assets turnover ratio of the cited company is 2.5 billion dollars (10/4). Apart from this, ABC limited is another garment company that is also working in thesame industry. In accordance with the given context, it is assessed that the total revenue of therespective company in the same fiscal year is 8 billion dollars. On the other hand, at thebeginning of the year, total assets were 1 billion dollars and at the end of the year, total assetswere 2 billion dollars. Thus, the average of total assets will be (1+2)/ 2= 2 or 1.5 billion dollars.Thus, the assets turnover ratio will be 5.33 (8/1.5)On comparing the ratio of both companies, it can be said that ABC limited is moreefficient in terms of using its assets for the purpose to generate revenue for the company ascompared to XYZ limited. This is because; in assets turnover ratio interpretation basicallydepends on the higher assets turnover ratio. Here, if the assets turnover ratio of the companyis high then in this situation it can be depicted that the firm is working very well in the market. WHY IT IS IMPORTANT TO IMPROVE ASSETS TURNOVER RATIOFor the firm, it is very much important that they should make efforts in terms of makingimprovement in their assets turnover ratio in an effectual way. The main aim of the given ratiois to assess the efficiency of the company in the process of managing its resources for the2
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