Asset Management Ratios

Question 1

Finished Goods
or Inventory
Turn-over

Indicates if a firm holds excessive stocks of
inventories that are unproductive and that lessen the company’s profitability.
Indicates the number of times average inventory is sold during the period.

Answer 1

Cost of Sales
/Average Inventory

Question 2

Average Age of
Inventories or
Number of Days
of Inventory

Measures the average number of days that
inventory is held before sales.
Indicates the length of time spent before the average inventory is sold to customers, there are 365 days in a year, however, 360
days are used for ease in computation.

Answer 2

Number of Days in a Year
/Inventory Turnover Ratio
or
Average Inventory
/Average Daily Cost of Sales

Question 3

Receivables
Turnover

Measures the average number of days to collect the receivable.
Indicates the efficiency in credit and collection policies, trade receivables
include open account and on notes.

Answer 3

Net Credits Sales
/Average Accounts
Receivables

Question 4

Average Age of
Receivables or
Number of Days
of Receivables
or Average
Collection Period

Measures the average number of days to
collect a receivable.
Measures quickness in collecting trade
receivables.

Answer 4

Number of Days in a Year
/Receivables Turnover Ratio
Or
Average Accounts Receivable
/Average Daily Sales

Question 5

Operating Cycle
or Conversion
Period

Measures the average number of days to
convert inventories to cash. Measures the speed of business cycle; the
number of days from which cash was invested in the normal business operations
until the day of its recovery.

Answer 5

Average Age of Inventories +
Average Age of Receivables

Question 6

Payable
Turnover

Measures effectiveness in using trade
credit facility from suppliers.

Answer 6

Net Credit Purchases
/Average Trade Payable

Question 7

Average Age of
Accounts
Payable

Determines whether the firm is paying invoices on a timely basis. Indicates the number of days spent before
paying liabilities to suppliers.

Answer 7

Average Accounts Payable
/Average Daily Purchases
Or
Number of Days in a Year
/Payable turnover Ratio

Question 8

Fixed Assets
Turnover

Measures the level of use of plant, property
and equipment.

Answer 8

Net Sales
/Average Net Fixed Assets

Question 9

Total Assets
Turnover

Measures the level of capital investment
relative to sales volume. Measures the effectiveness of asset utilization.

Answer 9

Net Sales
/Average Total Assets

Question 10

Plowback Ratio

Measures the percentage of net income
available for investment.
A high rate means less external financing.

Answer 10

Amount of Available for Reinvestment
/Net Income

Question 11

Days to
Operating Expenses

Indicates the number of times spent before
meeting operating expense payments.

Answer 11

Number of Days in a Year
/Cash Turn-over

Question 12

Current Assets
Turnover

Indicates the reasonableness of the amount of current assets.

Answer 12

Net Sales
/Average Current Asset