![]() ![]() Calculate your working capital by subtracting average total current assets from average total liabilities – i.e.This will include all cash, stock, and money owed by customers. Calculate the average value of your current assets for the year.Is cash lingering in places where it could be put to better use? This is what the working capital turnover ratio can help you find out. A pattern of marked increases in this ratio can also be a cause for concern: it could mean that you are over-stretched and you may need to invest in new equipment to keep up with demands. If sales are steady, or increasing from one year to the next, but your ratio is going down, this could mean that your equipment is being under-used. Divide sales by net fixed assets to give the fixed asset turnover ratio.Calculate your annual sales figure for the same period. ![]() Intangible and current assets are not included here. Calculate the average net value of your fixed tangible assets: machinery, equipment, and property.If it’s big, physical things you want to focus on, a more nuanced calculation is in order: the fixed asset turnover ratio. For instance, you might have purchased new machinery at the same time that you’ve acquired a valuable patent and a bulk load of stock. Fixed asset turnover ratioĪs your business grows, a big picture calculation such as the total asset turnover ratio can sometimes be a bit too general in helping you pinpoint precisely where things are going right or wrong. If so, are you lumbered with units that are not selling? It could be time to consider offloading these to a trade buyer. If you sell physical items, your inventory is often a culprit here. Your sales revenue has gone up, but the total sales turnover ratio has gone down. Now, let’s say you haven’t made any big purchases. In broad terms, have those investments paid off? Should the following year’s ratio be higher, it might be evidence that they have. For example, you could do the calculation just before you make several investments in new equipment. Total Asset Turnover Ratio = 5.3 times What does this tell you?įor a small business, the total asset turnover ratio (like other similar ratios) really comes into its own when you compare one year’s figure to the next. This is expressed as a ‘number of times per year’. Divide your sales figure by net assets to give your total asset turnover ratio.These liabilities are likely to include money owed to suppliers, loan repayments due within a year, and your outstanding tax bill – discount long-term liabilities such as loan capital due to be repaid after a year as these fall out of the period we are calculating. You arrive at this figure by dividing the value of current liabilities by total assets. ![]() the calendar year), make sure that you take sales figures for that period only- don’t inadvertently apply the sales figures for the previous tax year, for example. For accuracy, if you are calculating the ratio for the year ending 31 st December (i.e. Add these figures together and divide them by 2. Subsequently, go back to 1 st January and look at the net value of your assets on that date. Calculate the value of your assets on that date. Let’s say you are making the calculation on 31 st December. If possible, calculate your average total value of the assets for the period in question.Following this, include all current assets such as money owed by customers and money held by your business at the bank. ![]() The current net book value of these assets is applied, for example, after depreciation. For the purposes of this calculation, include not only tangible fixed assets, such as machinery and equipment, but also intangible fixed assets, such as patents, trademarks, and goodwill.
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