Efficiency indicators (Asset management ratios)

Analysis of turnover characterizes the intensity of use of the assets or liabilities of the organization. Efficiency indicators are calculated either as a ratio or in days of one rotation. The most popular in the financial analysis are the following turnover ratios: inventory turnover, accounts receivable turnover, asset turnover and accounts payable turnover.

When calculating the rate of turnover in the numerator is always the financial result in the form of revenue, in a denominator – average for the period value of the asset or liability, the turnover of which we analyze.

When calculating turnover days, the number of days (360, 90, 30, respectively year, quarter, month) divided by the annual turnover ratio.

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Inventory turnover ratio (IT), days

The inventory turnover shows how many times in the analyzed period the organization used the average available stock balance. This indicator characterizes the quality of the reserves and the effectiveness of their management, allows to identify the remains of unused, obsolete or substandard reserves.

The importance of the indicator is connected with the fact that profit arises at each "turnover" of stocks (ie use in production, operational cycle). Pay attention, the stocks in this case are understood as commodity stocks (stocks of finished goods) and industrial stocks (stocks of raw materials and materials). Inventory turnover is calculated as the ratio of cost of sales to the average annual inventory balance:

Inventory turnover (coefficient) = Material costs / Average annual stock balance

Along with the turnover ratio, the turnover rate in days is often calculated. In this case, this means - how many days of operation the company will have available stocks.

Inventory turnover in days = 360 / Inventory turnover ratio

For indicators of turnover of generally accepted standards does not exist, they should be analyzed within the framework of one industry and even better - in the dynamics for a particular enterprise. The decrease in the inventory turnover ratio can reflect the accumulation of surplus stocks, inefficient warehouse management, the accumulation of unusable materials. But high turnover is not always a positive indicator, as it can talk about the depletion of warehouse stocks, which can lead to interruptions in the production process.

Coefficient of turnover of receivables (Receivable turnover ratio, RT), days

The turnover of receivables measures the speed of repayment of the organization's receivables, how quickly the organization receives payment for the goods (works, services) sold from its customers.

The debt receivable turnover ratio shows how many times in a period (year) the organization received from customers payment in the amount of the average balance of unpaid debt. The indicator measures the effectiveness of work with buyers in terms of collecting receivables, and also reflects the organization's policy regarding sales on credit.

Receivables turnover (coefficient) = Revenue / Average balance of receivables

Also, the calculation of the indicator is not distributed in the form of a coefficient, but in the form of the number of days during which the receivable remains unpaid:

Accounts receivable turnover in days = 360 / Accounts receivable turnover ratio

For the turnover of accounts receivable, as well as for other indicators of turnover, there are no clear standards, because they are highly dependent on industry features and technology of the enterprise. But in any case, the higher the coefficient, i.e., the faster the buyers pay off their debts, the better for the organization. At the same time, effective activity is not necessarily accompanied by high turnover. For example, with sales on credit, the balance of accounts receivable will be high, and its turnover ratio is correspondingly low.

Accounts payable turnover ratio (PT), days

Turnover of accounts payable is an indicator of the rate of repayment by an organization of its debts to suppliers and contractors. This ratio shows how many times (usually, for a year) the firm has repaid the average value of its accounts payable.

Like the turnover of accounts receivable, the turnover of accounts payable is used in assessing the organization's cash flows and the efficiency of settlements.

Turnover of accounts payable is calculated as the ratio of the cost of purchased resources to the average for the period of the value of accounts payable (usually not all, but only related to the operating activities of the company).

Turnover of accounts payable (coefficient) = Purchases / Average value of accounts payable

Purchases = Cost of sales + Inventories at the beginning period - Inventories at the end of the period

In Russian practice, a more conditional version of the calculation is often used, when instead of purchases, revenues are taken for a period.

In addition to calculating the coefficient ("the number of revolutions"), it is customary to calculate the turnover in days:

Turnover of accounts payable in days = 360 / Accounts payable turnover ratio

The result is the average number of days that vendor accounts remain unpaid.

Turnover of accounts payable is highly dependent on the industry and the scale of the organization. For creditors, a higher turnover ratio is preferable, while for the organization itself it is more advantageous to have a low coefficient that allows you to have the balance of unpaid payables as a free source of financing for your current activity.

Asset turnover ratio (AT), times

Asset turnover is a financial indicator of the intensity of the organization's use of the entire set of available assets. This indicator is used along with other indicators of turnover, such as the turnover of accounts receivable, the turnover of accounts payable, stock turnover, for the analysis of the effectiveness of property management and the firm's obligations.

Asset turnover (coefficient) = Revenue / Average annual value of assets

Asset turnover (in days) = 360 / Asset turnover ratio

A certain standard for indicators of turnover does not exist, because they depend on the industry-specific features of the organization of production. In capital-intensive industries, asset turnover will be lower than in trade or services.

Higher asset turnover is desirable. Low turnover may indicate insufficient efficiency of asset use. In addition, turnover depends on the rate of return on sales. With high profitability, asset turnover is generally lower, and with a lower profitability rate, higher.

It should be noted that unlike the indicator "profitability of assets", where the profit is in the numerator, the turnover of assets does not give an idea of the profitability of the activity (i.e., the indicator will have a positive value in case of losses).

Explanations for the calculation of monthly, quarterly and annual values

Explanations to the calculations of monthly, quarterly and annual values, using annual average, using the example of calculating the inventory turnover ratios:

Inventory turnover (coefficient) = Material costs / Average annual stock balance

Inventory turnover in days = 360 / Inventory turnover ratio

Turnover is calculated in purchase prices or cost prices, in this case, it is a line in the income statement: "Material costs."

As a rule, to calculate the average annual value of assets, they find their amount at the beginning and end of the year and divide by "2". However, more correct and accurate calculations are obtained by using a formula, which is called the average chronological moment series . For all coefficients, using averages, this formula is used in calculations.

Table of calculation results for turnover ratios:

Period	Year	I Qu	Jan	Feb	Mar	II Qu	Apr	May	June	III Qu	July	Aug	Sep	IV Qu	Oct	Nov	Dec
Material costs	240	50	20	10	20	65	30	20	15	75	25	20	30	50	20	10	20
Inventories (Balance)	5	-	5	4	6	-	4	5	4	-	8	2	5	-	7	6	3
Coefficient, time	48	10	4	2	4	13	6	4	3	15	5	4	6	10	4	2	4
Coefficient, days	7,5	9,0	7,5	15,0	7,5	6,9	5,0	7,5	10,0	6,0	6,0	7,5	5,0	9,0	7,5	15,0	7,5

Example of calculating the year's reserves using the formula of the average chronological moment series:

Average reserves for the period (year) = (5/2 + (4+6+4+5+4+8+2+5+7+6) + 3/2) / n-1 = 5

5/2 + 3/2

(4+6+4+5+4+8+2+5+7+6)

n-1 = 11

The factor (times) is calculated - as the ratio of material costs to the estimated average annual reserve index (in this case = 5).

The coefficient (days) is calculated - depending on the period:

360 / Turnover ratio (times) - for the year

90 / Turnover ratio (times) - for the quarter

30 / Turnover ratio (times) - for the month.

Coefficients calculated in days are more preferable for analysis, since they are "correctly comparable" (correlated) for any period, they seem to be in the same plane of measurements - in days.

In the analysis, it is advisable to evaluate any financial indicator not in terms of its compliance with certain standards, but rather in the context of the actual state of affairs in the company. In this case, of course, it is useful to compare the indicators of the organization in question with those of its competitors and in the industry as a whole.

In addition, it is important to understand what is behind each indicator. For example, for a large aviation enterprise with a long production cycle, inventory turnover in 180 days can be absolutely acceptable, and for a trading network such a value may indicate serious problems with the sale of the goods.

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