BUS 320 Lecture Notes - Lecture 3: Asset Turnover, Inventory Turnover, Fixed Asset

• School: NCSU
• Department: Business Management
• Course: BUS 320
• Professor: Carl Luke Davis Jr

Document Summary

Used to evaluate operating performance of firm. Compares performance record against similar firms in industry. Additional evaluation of company management, physical facilities, & other factors. Measure firm"s ability to earn adequate return on: sales, assets, invested capital. Measure speed at which firms turns over: accounts receivable, inventory, long-term assets. Evaluate in light of asset base, earning power. Emphasizes firm"s ability to pay off short-term obligations as they come due. Secondary considerations - liquidity and debt utilization. For banker or trade creditor - liquidity ratios. For long-term creditors - debt utilization ratios and profitability ratios. Return on assets (operational in nature) = rofit margin. Equity multiplier (financial in nature - more debt gives higher e. m. = riskier) = Satisfactory return on assets can be derived through. Rapid asset turnover (generating more sales per dollar of assets) Return on assets (investment) = sset turnover. Satisfactory return on equity can be derived through. Return on equity = eturn on assets (investment)