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Questions and Answers
What do Asset Management Ratios indicate?
What do Asset Management Ratios indicate?
- How much a firm has invested in assets relative to revenue (correct)
- The profit margin of a firm
- The value of a firm's assets
- The total revenue of a firm
What is the Average Collection Period formula?
What is the Average Collection Period formula?
Accounts Receivable / (Annual Credit Sales / 365)
What is the Inventory Turnover Ratio formula?
What is the Inventory Turnover Ratio formula?
Cost of Sales / Average Inventory
What is the formula for Average Inventory when considering seasonal fluctuations?
What is the formula for Average Inventory when considering seasonal fluctuations?
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What is the Sales-To-Inventory Ratio formula?
What is the Sales-To-Inventory Ratio formula?
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What is the Fixed-Asset Turnover Ratio formula?
What is the Fixed-Asset Turnover Ratio formula?
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What is the Total Asset Turnover Ratio formula?
What is the Total Asset Turnover Ratio formula?
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Study Notes
Asset Management Ratios
- Measure investment in specific asset types relative to the revenue generated by those assets.
- Essential for understanding efficiency in utilizing assets to produce sales.
Average Collection Period
- Formula: Accounts Receivable divided by (Annual Credit Sales divided by 365).
- Indicates the average time taken to collect payments from customers.
Inventory Turnover Ratio
- Formula: Cost of Sales divided by Average Inventory.
- Assesses how effectively a company manages its inventory in relation to sales.
Average Inventory
- Calculation based on sales growth:
- For constant growth: (Beginning Inventory + Ending Inventory) divided by 2.
- For fluctuating sales: (Sum of Month-End Inventory Balances) divided by 12.
- Provides an average value of inventory held over a period.
Sales-To-Inventory Ratio
- Formula: Annual Sales divided by Ending Inventory.
- Reflects how efficiently inventory is being converted into sales.
Fixed-Asset Turnover Ratio
- Formula: Sales divided by Net Fixed Assets.
- Evaluates how well a company utilizes its fixed assets to generate sales.
Total Asset Turnover Ratio
- Formula: Sales divided by Total Assets.
- Measures overall efficiency in using all assets to produce revenue.
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