Assessing The Company’s Utilisation/Activity Of Assets
The following financial accounting ratio is for the assessing the activity of assets deployed by the company. Essentially, the activity ratios measure the efficiency of managing or using of assets like
- total assets,
- accounts receivable,
- inventory, and
- accounts payable.
Below demonstrates using the overall/total assets to company’s total sales. However, you can apply the aforesaid individual assets against the company’s total sales to understand which assets have been best or under utilised by the company.
| Ratio | TOTAL ASSETS TURNOVER |
| Formula | Net Sales Total Assets (or average) or Accounts Receivable, Inventory |
| Use | Measure the efficiency of the usage of total assets in generating sales. |
| Values | Varies. The higher is the more effective |
| Interpretation | Comparing similar periods and similar industry statistics determines measures of efficiencies by which the assets are employed in the business. |