For a comprehensive assessment of the state of the enterprise, it is necessary to conduct many calculations, and then analyze the results. An important part of the diagnosis is the analysis of how efficiently the enterprise operates. In turn, this can be determined by finding indicators of two groups: profitability and business activity. It cannot be said that some of them are more important than others, they simply characterize the effectiveness in slightly different ways. Now I’d like to dwell more on indicators of business activity.
Business activity of an enterprise means how intensively it uses the resources at its disposal. In numerical form, it is described by two types of indicators: turnover ratios and the duration of the turnover.
To determine the turnover ratio , you should find the ratio of revenue or cost to the value of an asset or liability. The use of cost or revenue in the calculations is determined by the properties of the turnover of which we want to know. So, the calculation of asset turnover is carried out using revenue, and inventory - using cost.
If you want to correctly determine the turnover of assets, then you need to understand what values to use to substitute in the formula. The fact is that in the reporting you can easily find out the amount of revenue for a period, but the value of assets is determined only for a specific date, and during the period it can vary greatly. In connection with these circumstances, you can use the value at the end of the period, but it will be more correct to use the average value of assets.
Assets in their structure are highly heterogeneous, which means that asset turnover as a whole does not allow an objective assessment of the intensity of use of each of them. Non-current assets change little and are used for a long time, so little attention is paid to their turnover. In turn, indicators of the turnover of current assets are extremely important. It is this group of assets that is directly related to ensuring the current activities of the enterprise.
Special attention should be paid to how important it is to determine the turnover of assets, on which the duration of the financial and operational cycle of an enterprise depends. These include inventories and receivables in terms of customer debt. The slower the assets turn around, the longer these cycles are, which negatively affects the activities of the company.
You should also pay attention to the calculation of the turnover indicators of some liabilities. The most important thing is to evaluate the rate of turnover of equity, as well as accounts payable. Again, to determine the duration of the financial cycle, you will need to find out the value of the period for which the payables of the enterprise to its suppliers and contractors turn around. In this case, oddly enough, an increase in the indicated period, that is, a slowdown in turnover, will be a positive phenomenon.
As you can see, for the most objective determination of the degree of intensity of resource use, it is advisable to determine not only the turnover of assets, but also some liabilities. Nevertheless, it should be understood that, in isolation from other indicators, turnover cannot fully characterize the financial condition of the enterprise. In this regard, it is advisable to calculate profitability indicators, as well as determine the degree of financial stability and dependence.