Asset management ratios are important - firms need to manage assets efficiently because capital obtained to acquire those assets is expensive. these ratios include the:
(1) inventory turnover ratio,
(2) days sales outstanding,
(3) fixed assets turnover, and
(4) total assets turnover.
the inventory turnover ratio indicates how many times during the year inventory is and restocked. its equation is: excess inventory is unproductive and represents an investment with a rate of return. an alternative definition of the inventory turnover ratio replaces sales in the numerator with . the rationale for this measurement is that inventory is carried at cost, so sales in the numerator overstates the true inventory turnover ratio. the days sales outstanding (dso) ratio is also called the average collection period (acp). its equation is: the dso can also be evaluated by comparison with the terms on which the firm its goods. if its trend has been rising and policy has not changed, this would indicate a need to speed up the collection of receivables. the fixed assets turnover ratio measures how effectively the firm uses its plant and equipment. its equation is: there can be problems interpreting this ratio due to particularly when an older firm is compared with a newer company. the total assets turnover ratio measures how effectively the firm uses its total assets and whether the firm generates enough sales given its total assets. its equation is: