The asset turnover ratio is an important financial indicator of the intensity of the use of existing assets by an enterprise. It is characterized by the speed of turnover and shows the effectiveness of the distribution of own, as well as borrowed sources of financing for the activities of an economic entity, including capital and profit. The value of the coefficient for the analyzed period is directly proportional to the amount of sales and is equal to the number full cycles asset turnover.
What is asset turnover
The definition of asset turnover (from the English asset turnover) is used to manage the total resources of the organization, including property, non-property objects, obligations of a different nature. This term indicates the level of business activity of a business. The higher the value, the more successful company and higher profitability per ruble of assets. The lower the value, the lower the liquidity, the higher the receivables, the lower the profitability.
To assess the turnover of assets (the balance sheet formula is given below), we use economic methods calculations based on average indicators characteristic of a particular industry, enterprise. The analysis is carried out in dynamics, it is advisable to carry out research on the values of direct competitors in the market. To get the full picture, a positive trend is required with the growth of indicators from period to period. If the values remain low, it is necessary to optimize assets by freeing up unused resources, reducing excessive inventories of goods and materials, developing measures for settlements with debtors, etc.
Asset turnover ratio - balance sheet formula
To maximize the accuracy of mathematical formulas, it is recommended to take reliable accounting data at the end of the last reporting day. If monthly/yearly analytics are available, use this data by dividing the corresponding figures by 12 (for months) and 2 (for a year). The data is taken from the accounting forms - 1, 2.
Depending on the purpose of financial analysis, 2 calculation methods are used:
- Rates turnover rate- for the analyzed period of time, the value of the turnover of the enterprise's assets for each ruble of proceeds is calculated.
- characterizes turnover period- the length of time for which the assets of the enterprise are returned to the production cycle is determined.
The asset turnover rate is calculated on a certain date using the coefficient according to the formula:
OA ratio = Total sales revenue / average value assets for the reporting period
Average value of assets for the reporting period = (Value at the beginning in rubles + Cost at the end in rubles) / 2
The turnover period in days is calculated for a given time period. The duration can be a month, a quarter, a half year, a year. The formula applied is:
OA period = Duration (30, 90, 180, 360 days) / Turnover ratio
Lines in financial statements
The main data for determining financial indicators are taken from the forms of mandatory financial statements. The forms were approved by order No. 66n dated July 2, 2010. Form-1 “Balance Sheet” and form-2 “Report on financial results» for the analyzed period.
Calculation formulas with component coding
OA coefficient = line 2110 / (line 1600 at the beginning + line 1600 at the end) / 2, where
2110 - the value of revenue from f. 2;
1600 - the total value of assets from f. one.
The growth of the OA ratio shows an increase in the turnover of resources, an increase in profitability and sales income per unit of assets. The decrease characterizes the decrease trading activities business, increasing the volume of assets. The transformation indicator in the OA period is used to assess the duration of the transformation of assets into real money.
The highest values of OA are typical for enterprises with high speed circulation of resources - trade, logistics, services; for companies engaged in capital-intensive industries (mining, construction) - turnover is lower and requires analysis in dynamics.
How to understand whether something needs to be radically changed in the purchasing or assortment policy, or is it being carried out effectively? To do this, you do not need to calculate different indicators and compare a large amount of data. It is enough to calculate the turnover ratios working capital and see their dynamics. Even one indicator may be enough - the turnover ratio in dynamics for at least half a year or a year.
Tracking the dynamics of this indicator, you can absolutely not miss the moment when purchasing and assortment management became less effective. Why exactly is the turnover of material working capital so important indicator? Because it shows the essence of the process of trade or production, which consists in the following cycle: Money - Commodity for sale - Money. The higher it is, the faster the investment pays off, the faster the company makes a profit.
Working capital turnover formula
, where
Cob - turnover ratio, B - Revenue for a certain period (not including VAT), Co - average working capital for the period. The Co indicator is calculated as the sum of working capital at the beginning of the period and at the end, divided in half.
For example, if during the year household appliances in the amount of 1,200 thousand rubles. (without VAT), and the average amount of working capital was 600 thousand rubles, then the coefficient will be equal to 2.
It is also useful for analysis to calculate the turnover of working capital in days or the duration of the turnover, which is calculated by the formula:
, where
Dob is the duration of the turnover, Kob is the turnover ratio, and Dp is the length of the period under consideration in days. In the above numerical example with household appliances, the duration of the turnover will be equal to:
Thus, the duration of the turnover in the example above is six months. This means that invested in turnover financial resources return with a profit in six months.
The working capital turnover ratio does not have a strictly defined framework or boundaries. It will be different depending on the field of activity, demand for products and even on the location of the store. For example, in wholesale trade daily consumption goods, this figure can be quite high.
What indicators to compare for effective analysis
The turnover ratio of working capital is calculated at least once a quarter and compared in dynamics. It also makes sense to compare the turnover ratios of similar enterprises, for example, of different outlets one enterprise. The management of the turnover of working capital of an enterprise begins with a comparison of these indicators in dynamics. It would be nice to compare turnover rates with similar data from competitors, if this data is publicly available.
As one of the ways to accelerate the turnover of working capital in the whole enterprise, you can use changes in the assortment. For this, the turnover ratio is calculated by certain types products. The obtained coefficients are compared with each other and on the basis of this it is possible to derive a conditional average or minimum coefficient. If for some product names this indicator is lower, then it is worth significantly reducing the quantity of this product or abandoning it altogether. AT manufacturing enterprises such products are removed from production or their output is reduced.
If it is this product that has a strategic benefit, then measures and measures can be taken to accelerate the turnover of working capital. It is also advisable to increase the turnover not only for each type of product, but also for the enterprise as a whole - the higher the turnover ratio, the higher the profitability of the enterprise. Turnover is affected by:
- Cost and types of materials used in production;
- The pace of production and the duration of the production cycle;
- Production volumes or sales volumes;
- Qualification of employees of the enterprise (both in production and in trade).
By improving these components and parameters, it is possible to accelerate turnover and increase significant performance indicators of the enterprise.
Rational and competent use of resources and means of the company guarantees its success in the market. An important role goes to the analysis of working capital, in which problematic areas of development lie. In addition, a reliable assessment allows you to analyze the general policy of the enterprise, identify the main mistakes and begin to identify reserves for improving efficiency.
The turnover of working capital characterizes the business activity of the enterprise
About the indicator
Indicators of profit, profitability, liquidity are subject to mandatory calculation. An important role is given to such an indicator as. Its expediency and the need for regular calculation are discussed at every enterprise, this is also evidenced by the fact that the Ministry of Finance of Russia recommends its use.
Note: the indicator is otherwise called the rate of turnover of goods and characterizes the size of the volume of proceeds received from sales by the value of the average cost of funds. Demonstrates how profitable and efficient use of working capital is, which allows you to evaluate the picture economic efficiency generally.
In practice, the value of the period of one revolution is used. Because both are important, their meanings play important role in the activities of any enterprise.
What does it depend on:
- Industry of the firm. For industry, some values are provided, for construction - others, for the computer sector - third, and for trade - fourth. It is not the general indicator of orientation that is taken into account, but its private values (for example, the seasonality of goods).
- Economic policy applied by management. Qualification and level of preparedness of specialists. Efficiency of making commercial and managerial decisions.
For each type of enterprise, the optimal value of the parameter is determined.
Calculations
Calculation formulas
For the calculation, there is no need to use difficult cumbersome formulas. In principle, there is one calculation method that can be deciphered as follows: the value of the indicator is equal to sales revenue divided by the average balance for the reporting period. In another way, these balances are called commodity stocks.
The formula for the turnover ratio of working capital is as follows:
The numerator shows the volume of products sold for a certain period, and the denominator shows the average value of the balance of funds for the same time. The parameter shows how many turnovers the funds had for a certain period - a quarter, six months, a year.
The duration of the turnover is found by using the following formula
The indicator characterizes how long the company can return its funds as revenue. The parameter T represents the number of days (for a year - 360, for a month - 30).
Calculation example
As we found out, the turnover ratio of working capital characterizes the effectiveness of their use. Consider the calculation procedure and the degree of its significance in any enterprise.
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Suppose that for the reporting period equal to a year, products were sold in a quantitative volume equal to 20 million rubles. Average per year balance inventory amounted to 4 million rubles.
In this case, the calculation will be as follows
Thus, the indicators of turnover of working capital are as follows: they manage to make 5 turns every 72 days. For some types of enterprises, this parameter is optimal, however, for sales in small enterprises, the turnover ratio should take a higher value.
Finding data for calculations
The question arises of where to find the indicators that are needed to calculate the data using the formula. First of all, the data of the company's financial statements serve as the main sources of indicators. Would need the most important document activities - the balance sheet, its application as a profit and loss statement. The data is collected for the period under study.
The volume of quantitatively sold products is the amount displayed on line 10 in the Report - it is this document that contains data on net revenue.
To calculate the average cost of working capital, the sum of the cost is divided in half, that is, the indicator of inventory at the beginning of the year is taken (it is equal to the amount of TK at the end of the previous one), as well as at the end of the period.
The formula for the average cost of working capital
Their sum is divided in half. The question arises of finding data for calculation, and the balance sheet, line code - 290, acts as a reliable source of data.
Factors affecting the indicator
For each enterprise, based on the main branch of its activity, there is its own indicator. There is no specific value that was considered universal and optimal for everyone. The real champions in terms of the parameter value are wholesale and retail due to the nature of the activity. But companies engaged in the field of culture and science have slightly different indicators, which is quite natural. A timely analysis of the turnover of working capital will allow achieving optimal results in this area.
Values are affected by:
- raw materials used;
- rates and volumes;
- skill level;
- Kind of activity.
- analysis of the indicator.
Note: the value of the turnover ratio alone speaks volumes. If the parameter exceeds one, the enterprise is fully considered profitable. If the value is more than 1.36, this indicates increased profitability, therefore, his policy works as efficiently and rationally as possible.
Despite this, importance is given to measuring this indicator not separately, but in dynamics, so that it is possible to compare the values. For clarity, accountants and other employees use visual tables to conduct analytical operations with data and make decisions to stabilize the situation. Positive dynamics speaks of good development companies.
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We will figure out how to act and where to find indicators. To produce goods, it is not enough to use the means of labor (machines, equipment) and involve workers.
It is also necessary to have source materials, raw materials, blanks, that is, everything that is needed when creating finished products in the production process. Work items needed.
To do this, you need to have money to buy everything you need from suppliers and pay staff for their work.
Objects of labor and money constitute the working capital of the company. But you need to determine the value of such an indicator, to know how to write off working capital.
Basic moments
First, let's find out what is meant by this economic expression and what regulations are relevant.
What it is
Working capital is called the totality of funds that turn around and cash circulation funds. Revolving funds are represented by:
- raw materials;
- basic and auxiliary materials;
- component parts;
- unfinished production facilities;
- container;
- other items of work.
Why is it needed
The turnover ratio of inventories reflects how many times the company used the average of the available balance of working capital in the analyzed period.
According to the balance sheet, current assets consist of:
- stocks;
- of money;
- short-term financial investments;
- short-term receivables, taking into account the purchased values.
Values can characterize what share of working capital and total assets and how effectively they are managed.
But it is worth remembering that the nuances of the industry in the production cycle are also taken into account. Working capital turnover is an important indicator.
Indeed, with the rapid turnover of the company's funds, the gap between the invested funds in manufacturing process and receiving.
The difference between working capital and the main fund - they are used in production cycles once, and they can transfer their price to the finished product.
Regulatory regulation
It is important to study the provisions:
- PBU 6/01 according to.
- Guidelines for accounting of fixed assets (), etc.
How to determine the turnover ratio of working capital
There are ready-made formulas that can be used to calculate turnover in any industry.
But in many cases it will not be possible to obtain an accurate result, since it is impossible to take into account all factors, and the management of each organization has different knowledge in the field of doing business.
What does it characterize
Thanks to the turnover ratio of working capital, you can determine how efficiently current assets are used. You should rely on the information that is in the balance sheet.
The turnover ratio is financial indicator that allows you to determine how effectively the assets and liabilities are used.
It is able to show the business activity of the organization. If the asset turnover ratio is three, then the company receives revenue for the year, which exceeds the value of assets three times.
Since turnover rates may depend on the industry, it should be understood that in a trading company with a large amount of revenue, turnover will be greater.
If the industry is capital-intensive, then a lower value will be obtained. But it is not correct to believe that the turnover will show the efficiency of operations and profitability.
But when conducting a comparative analysis of the coefficients of the two organizations, you can see what a difference in the effectiveness of asset management.
If there is a higher debit turnover rate, it means that payments from buyers are collected efficiently.
The main goal pursued in the management of the company's assets (including working capital) is to increase profit on invested funds, ensuring a stable and sufficient solvency of the organization.
In order to achieve such a goal, it is worth constantly having on the account a certain amount, which is actually withdrawn from circulation. These funds are used to make current payments.
Part of the amount should be placed as highly liquid assets. It is important to ensure that the optimal ratio of solvency and profitability is ensured.
To do this, support the size and structure current assets, borrowed and working capital.
What are the types
The most popular ratios in financial plan analysis:
| Turnover of current assets | What is represented by the ratio of the proceeds of the enterprise in general to the turnover of the amount of the organization's assets for a specific time |
| inventory turnover | What shows how management uses profit and cost spikes |
| Accounts receivable turnover | This ratio will allow you to calculate how much debit debt has formed |
| accounts payable | What are necessary for the lender, as it allows you to determine whether it is possible to pay the company's loan |
| assets | What determines the indicators of many financial transactions |
| Firm equity | What can show the effectiveness of the use of funds by an organizational unit |
Formula applied
What positions characterize the coefficient? The indicator depends on:
- from the duration of production cycles;
- qualifications of workers;
- type of activity;
- pace (performance indicators).
The higher value is typical for trade organizations, and less - for fund-intensive scientific firms.
The formulas are directly proportional equations that are easy to understand.
If you are unable to deal with them, you can always contact a specialist who will help with the calculations.
So, the formula for determining the asset turnover ratio looks like this:
This formula is the most commonly used. Less commonly used is a formula in which the turnover ratio of working capital is calculated as the ratio of the number of days in a year to the turnover data.
Any value can be quickly found. For example, information about assets is in the balance sheet, and data on revenue is in the financial statements of the enterprise.
And here is the formula for the turnover ratio of current assets:
If the value is large, then we can talk about the growth of the enterprise. Current assets are not taken into account at the beginning / end of the period, which is analyzed. The indicator of the average annual balance is important.
The figures for the beginning of the year and the end must be divided by two. In addition to the turnover ratio of material assets, the turnover rate is also determined in days, which can take one turn.
So 365 days should be divided by the annual number of the turnover ratio. For example, the coefficient figure of 3 will show that the assets turn over in 121.7 days.
What are the features of calculating the company's capital turnover ratio? There are no definite rules, just like the average value.
Each organization displays its own values, which will be different (depending on the industry). But there is a direct relationship - the larger the coefficient, the greater the return on capital.
The formula is:
The company must be able to use intensively reserves and costs in its favor. Use the formula:
In the event that a large value is obtained, it means that the company does not have enough stocks. As a result, there are unnecessary waste.
The formula for determining the debit debt ratio:
There is no average. Everything will depend on the management and industry of the firm. How more number the faster the company can pay off its debts.
When determining the loan debt turnover ratio, the following formula is used:
The result will show how intensively the firm repays its. There cannot be a certain general value of the coefficients.
They are analyzed in dynamics or compared with the performance of another company in the industry.
If the value is very low, and it cannot be justified by the characteristics of the industry, then the company has excess working capital. If the indicator increases, most often it is a plus for the company.
There will be a rapid turnover of mobile funds, there will be more proceeds. With the acceleration of turnover, other performance indicators improve.
The disadvantage is that if there are a lot of stocks, it is necessary to organize a place for storage, which will entail additional costs.
With the acceleration of turnover, productivity will increase, which means that workers will also increase.
Video: determining the efficiency of the use of working capital of an enterprise
This means that even before planning an increase in the coefficient, it is worth adjusting the potential profit and costs, which will also increase.
When can turnover go down? - If the duration of turnover increases due to an unjustified increase in inventories, the emergence of buyers' debts, disruptions in production.
After all, as a result, the production of goods will not be completed. There may also be such a reason - demand is decreasing, and finished goods are longer in warehouses. The volume of production is decreasing.
How to calculate by balance
To set the turnover ratio, you should take information from.
The available information will allow you to find out the value for the year. It will not be possible to find out any other period according to the balance sheet.
The current formula is:
Let's take an example. The final indicator (with line code 1200) at the end of 2015 is 400 thousand, and 2016 - 500 thousand. The amount of revenue (with line code 2110) at the end of 2015 is 1.5 million, and 2016 - 1.8 million.
The calculation is:
So, the value of the coefficient is 4, which means that the mobile fund is taken 4 times a year.
Calculation examples
For example, in a year the company sold 5,000 pieces of products. The cost of one unit is 180,000 rubles. The selling price is 15 percent more than the cost price.
The value of the average annual balance of working capital is 145,000,000 rubles. You should set the value of the coefficient, as well as find out how long one revolution lasts and what the load factor is.
So, for one ruble of goods sold, there are 14 kopecks. the value of working capital. One turn lasts:
Here is another example. The organization "Stepashka" in 2014 has a profit of 249,239 rubles. The asset turnover indicator at the beginning of the year is 48 thousand rubles, at the end - 34 thousand.
Turnover ratios or business activity of the enterprise- show the effectiveness of the use by the enterprise (organization) of its capital and funds. These ratios show the rate of capital turnover and its transformation into cash. Turnover ratios directly determine the degree of solvency of the enterprise (the ability to pay for its obligations), financial stability and financial risk. Turnover ratios in their calculations do not use net profit as profitability ratios, but proceeds from the sale of goods and services. This allows you to evaluate not the profitability of the enterprise, but its intensity and speed of turnover of resources, assets, stocks, cash, receivables and accounts payable.
This article will consider the main enterprise turnover ratios most commonly used in financial practice, such as:
- Asset turnover ratio
- Turnover ratio equity
- Current assets turnover ratio
- Inventory and asset cost turnover ratio
- Accounts receivable turnover ratio
- Accounts payable turnover ratio
- Cash turnover ratio
The asset turnover ratio is the ratio of revenue from products sold to all assets of the enterprise. This ratio shows the efficiency of the use of assets and shows the number of turnovers of the entire capital for the period and the amount of money that a unit of assets brought.
There are no normative values for the asset turnover ratio, so it is necessary to directly investigate the dynamics of this indicator change over time for one enterprise or industry. In capital-intensive industries, asset turnover will be lower than in the areas of trade. The higher the asset turnover ratio, the more efficient the use of assets. This indicator differs from the return on assets indicators in that it does not show the profitability of the enterprise, but characterizes the intensity of turnover. Therefore, in the turnover formulas, not net profit is used, but the company's revenue for the reporting period. The formula for calculating the asset turnover ratio is as follows:
Asset turnover ratio= Sales revenue / Average assets for the period
Asset turnover ratio\u003d p. 10 Form No. 2 / (0.5 * (p. 300 beginning of the year + p. 300 end of the year))
The equity turnover ratio is calculated as the ratio of the volume of product sales (revenue) to the average annual cost of equity. The equity turnover ratio shows the activity and rate of use of equity by the enterprise.
There are no normative values of the equity turnover ratio, it is necessary to investigate the dynamics of this indicator for one enterprise. The formula for calculating the equity turnover ratio is as follows:
Equity turnover ratio= Revenue from product sales / Average cost of equity for the period
Equity turnover ratio= line 10 Form No. 2 / 0.5 * (line 490 at the beginning of the year + line 490 at the end of the year)
The turnover ratio of current assets shows the activity of use and the speed of circulation of current assets. This coefficient characterizes how much current assets made a full turnover in one year and how much revenue they brought. Current assets include accounts receivable, cash, reserves and deferred expenses, short-term financial investments. The higher the value of this ratio, the more efficient the enterprise. The formula for calculating the turnover ratio of current assets:
Current assets turnover ratio= Net revenue from product sales / Average annual cost current assets
Current assets turnover ratio= line 10 Form No. 2 / 0.5 (line 290 at the beginning of the year + line 290 at the end of the year)
The inventory turnover and asset cost ratio shows the intensity of inventory use and the rate of turnover.
There are no standard values for the turnover ratio. This indicator must be analyzed in dynamics for a particular enterprise or industry. A decrease in the turnover ratio indicates that the accumulation of excess stocks in the warehouses of the enterprise. The higher the inventory turnover ratio and asset costs, the higher the activity of the enterprise in creating cash. Excessively high inventory turnover and asset costs are indicative of severe inventory shortages and rapid depletion. The formula for calculating the inventory turnover ratio and asset costs:
Inventory and asset cost turnover ratio= Net revenue from product sales / Average annual inventory value
Inventory and asset cost turnover ratio\u003d p. 10 Form No. 2 / 0.5 * [(p. 210 + p. 220) at the beginning of the year + (p. 210 + p. 220) at the end of the year]
The accounts receivable turnover ratio shows the rate of turnover of accounts receivable. There are no clear standard values for the receivables turnover ratio, they vary depending on the industry, but the higher the ratio, the faster consumers repay their obligations, which is beneficial for the enterprise. The formula for calculating the receivables turnover ratio is as follows:
Accounts receivable turnover ratio= Revenue from the sale of goods and services / Average annual receivables
Accounts receivable turnover ratio\u003d p. 10 Form No. 2 / 0.5 * [(p. 230 + p. 240) at the beginning of the year + (p. 230 + p. 240) at the end of the year]
The accounts payable turnover ratio shows the speed and intensity of repayment of the company's obligations to borrowers and characterizes the number of turnovers of repayment of accounts payable for the reporting period, which, as a rule, is one year. Standard value the turnover ratio of accounts payable depends on the industry and the nature of the enterprise. The formula for calculating the accounts payable turnover ratio is as follows:
Accounts payable turnover ratio= Revenue from the sale of goods and services / Average accounts payable
Accounts payable turnover ratio= line 10 Form No. 2 / 0.5 * (line 620 at the beginning of the year + line 620 at the end of the year)
The cash turnover ratio shows the intensity of the use of the company's cash and shows the number of turnovers for the reporting period. The formula for calculating the cash turnover ratio is as follows:
Cash turnover ratio= Revenue from the sale of goods and services / Average amount of cash
Cash turnover ratio= line 10 Form No. 2 / 0.5 * (line 260 at the beginning of the year + line 260 at the end of the year)
conclusions
Turnover ratios are an important indicator of the efficiency of the use of resources by an enterprise. These indicators, unlike profitability indicators, show the turnover rate and intensity, because in their calculation formulas they use revenue values (rather than net profit as for profitability ratios). Turnover ratios are examined in dynamics to analyze the direction and assess the nature of their change for one enterprise, a group of similar enterprises and one industry.
