Asset management ratios Asset management ratios are used to measure how effectively a firm manages its assets, by relating the amount a firm has invested in a particular type of asset (or group of assets) to the amount of revenues the asset is generating. Examples of asset management ratios include the average collection period (also called the days sales outstanding ratio), the inventory turnover ratio, the fixed asset turnover ratio, and the total asset turnover ratio.
Consider the following case: Graham Pharmaceuticals has a quick ratio of 2.00x, $31, 500 in cash, $17, 500 in accounts receivable, some assets of inventory, total $70,000, and total abilities of $24, 500. The company reported annual sales of $100,000 in the most recent annual report, over the past year, how often did Graham Pharmaceuticals sell and replace its inventory?
a. 8.01 x
b. 5.24 x
c. 2.85 x
d. 4.75x
The inventory turnover ratio across companies in the pharmaceutical industry is 4.05x. Based on this information, which of the following statements is true for Graham Pharmaceuticals?
A. Graham Pharmaceuticals is holding less inventory per dollar of sales compared to the industry average.
B. Graham Pharmaceuticals is holding more inventory per dollar of sales compared to the industry average.
You are analyzing two companies that manufacture electronic toy s-Like Games Inc. and our Play Inc. Like Games was launched eight years ago, whereas Our Play is a relatively new company that has been in operation for only the past two years. However, both companies have an equal market share with sales of $100,000 each. You've collected company data to compare Like Games and our play. Last year the average companies in the coming year. You've collected data from the companies financial statements. This information is listed as follows:
Data Collected (in dollars)
Like Games Our Play Industry Average
Accounts receivable 2,700 3,900 3,850
Net fixed assets 55,000 80,000 216,750
Total assets 95,000 125,000 234,600
Using this information, complete the following statements to include in your analysis. A days of sales outstanding represents an efficient credit and collection policy. between the two companies is collecting cash from its customers faster than but both companies are collecting their receivables less quickly than the industry average. Our Play's fixed assets turnover ratio is ___ than that of Like Games. This could be because our play is relatively new company, so the acquisition cost of its fixed assets is than the recorded cost of Like Games's fixed assets. Like Games's total assets turnover ratio is which is ___ than the industry's average total assets turnover ratio. In general, a higher total assets turnover ratio indicates greater efficiency.