Fixed Assets Turnover Ratio

 

 

 ASSETS TURNOVER RATIO

The relationship between assets and sales is known as assets turnover ratio.  Several assets turnover ratios can be calculated depending upon the groups of assets, which are related to sales.

 

a)    Total asset turnover.

b)   Net asset turnover

c)    Fixed asset turnover

d)   Current asset turnover

e)    Net working capital turnover ratio

a.  TOTAL ASSET TURNOVER

This ratio shows the firms ability to generate sales from all financial resources committed to total assets.  It is calculated by dividing sales by total assets.

cost accounting total asset turnover ratio 2nd year bcca

b.  NET ASSET TURNOVER

This is calculated by dividing sales by net assets.

cost accounting net asset turnover ratio 2nd year bcca

Net assets represent total assets minus current liabilities.  Intangible and fictitious assets like goodwill, patents, accumulated losses, deferred expenditure may be excluded for calculating the net asset turnover.

 

c.  FIXED ASSET TURNOVER

This ratio is calculated by dividing sales by net fixed assets.

cost accounting fixed asset turnover ration 2nd year bcca

Net fixed assets represent the cost of fixed assets minus depreciation.

 

d.  CURRENT ASSET TURNOVER

It is divided by calculating sales by current assets

cost accounting current asset turnover ratio 2nd year bcca

 

e.  NET WORKING CAPITAL TURNOVER RATIO

A higher ratio is an indicator of better utilization of current assets and working capital and vice-versa (a lower ratio is an indicator of poor utilization of current assets and working capital).  It is calculated by dividing sales by working capital.

cost ac net working capital 2nd year bcca

Working capital is represented by the difference between current assets and current liabilities.

 

Debt equity ratio

Debt equity ratio shows the relative claims of creditors (Outsiders) and owners (Interest) against the assets of the firm.  Thus this ratio indicates the relative proportions of debt and equity in financing the firm’s assets.  It can be calculated by dividing outsider funds (Debt) by shareholder funds (Equity)

cost ac debt equity ratio 2nd year bcca

The outsider fund includes long-term debts as well as current liabilities.  The shareholder funds include equity share capital, preference share capital, reserves and surplus including accumulated profits.  However fictitious assets like accumulated deferred expenses etc should be deducted from the total of these items to shareholder funds.  The shareholder funds so calculated are known as net worth of the business.

 

Earning per share.

IT measure the profit available to the equity shareholders on a per share basis.  It is computed by dividing earnings available to the equity shareholders by the total number of equity share outstanding

cost ac earning per share 2nd year bcca

 

 

 

 

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