Financial Ratios Asset Management

Part three of a multipart example on how to calculate basic financial ratios. This part focuses on asset management ratios -- inventory turnover, days sales outstanding, fixed asset turnover, and total asset turnover.

Category:

Education

Tags:

• Financial
• Ratios
• Asset
• Management

[tubeyou60]

Hi, I was taught that inventory turnover uses cost of sales (rather than sales revenue) and average inventory across the year (i.e. average of figures from balance sheets either end of the year). Does this make a difference?

[kevinbracker]

Some textbooks calculate the Inv. Turnover ratio as you describe. Either approach (or using revenues divided by average inventory) are all acceptable. You could make an argument over which is theoretically the best, however what is more important is consistency. As long as you use the same approach over time and across companies for your trend and comparative analysis, there will be little difference in the interpretation of what the results regardless of which variation you use.

[Martin69tube]

Hi Kevin, why do you devide the accounts receivable by 360 in stead of 365 day's a year..?

The rest is very helpfull, thx.

Martin. (Netherlands)

[kevinbracker]

360 is commonly used in this ratio instead of 365. As far as I know, this is a carryover from pre-calculator/computer era for ease of calculations. If you are doing it for a class, just be sure to set it up like the instructor or book you are using states. If you are doing it on your own, feel free to use 365 as long as you do so consistently.

[fahad7957927]

hey hi could you please tell me what do fixed assets turnover and inventory turnover mean?

thanks