To increase the current asset turnover some measures have to be taken to return the company's funds. ![]() One of the causes that influenced this decrease was the accounts receivable growth. In other words, in year 1 firm generated $5,10 of sales for every current assets dollar, in year 2 it started generating 5,03 times as much sales as its current assets. This indicates a slight decline in firm’s ability of generating sales through its current assets, such as cash, inventory, accounts receivable, etc. Year 2 witnessed a slight decrease of firm’s current asset turnover ratio from 5,10 to 5,03 comparing to year 1. Finally, for yearly reports the average value of the current assets amount from the beginning and the end of the year should be taken for calculations.Ĭurrent Asset Turnover (Year 1) = 3351 ÷ 656 = 5,10Ĭurrent Asset Turnover (Year 2) = 3854 ÷ 766 = 5,03 For monthly data the values should be taken from the end of every month. If the internal company report is available for access, then the average total assets amount should be calculated considering the values for current assets at the end of every working day. Same as with total asset turnover, there are few ways of the average current assets calculation. activation of the accounts receivable collection process, etc.Ĭurrent Asset Turnover = Net Sales ÷ Average Current Assets Example:.sales promotion and decreasing the finished goods stock.decreasing the inventory stock to the minimum level, which would allow the continuous operational process.In case the current asset turnover value is low there are following ways to increase it: Resolving the problems with the current asset turnover exceeding the normative range: If the access to sources of finance is limited, this will cause the increase of the company's financial expenses. The decrease of the current assets turnover indicates the firm's increasing need of sources of finance. This means that bigger part of the financial resources can be used for current operations intensification or making investments. In fact, increasing current asset turnover leads to the decrease of the financial resources amount, needed for the company's operations maintenance. The increasing trend of this ratio is a good sign because this means that the company is working on the consistent improvement of its policies in inventory, accounts receivable, cash and other current assets management. However, higher current asset turnover comparing to competitors would indicate a high intensity of the current assets usage. The values may vary between businesses and industries, and the normative value is absent. It can be calculated by dividing the firm's net sales by its average current assets, and it shows the number of turns made by the current assets of the enterprise. Current Asset Turnover - an activity ratio measuring firm’s ability of generating sales through its current assets (cash, inventory, accounts receivable, etc.).
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