In a market economy, the stability of the company is largely due to its activity in the work, which depends on business reputation, efficient use of resources, the breadth of markets, economic sustainability.
In the financial aspect, the company's activity is manifested in the rate of turnover of its funds, which can be analyzed by the current assets turnover ratio and other indicators.
The importance of indicators characterizing the turnover of funds is explained by the fact that they show the profitability of the company.
The asset turnover ratio (resource yield) allows you to see the rate of turnover of the total capital of the company in the aggregate. It shows how many times the complete cycle of circulation and production is carried out for the period under review or how many monetary units each unit gave.
The turnover ratio is calculated by dividing the net proceeds from sales by the average annual cost of capital. This indicator allows you to evaluate the effectiveness of the use of assets, regardless of their sources of formation. The definition of the resource return indicator shows the amount of profit received from each ruble invested in assets.
From the speed of turnover depends on the financial condition of the company, its liquidity and solvency. The most important indicators of resource output are the period and speed of turnover. The latter shows how many revolutions of capital have occurred over a given period of time. The average period for which the return of funds invested in commercial operations or production will occur is called the turnover period.
Low turnover (of goods, for example) indicates a low efficiency of the assets of the company.
Current assets turnover ratio
The characteristic of the speed of turnover from the moment of payment to the return of money for realized tangible assets to a bank account is the turnover of funds (circulating). Their amount is calculated based on their total size, deducting the balance of monetary assets in the current account.
The turnover ratio of working capital is also calculated by the ratio of gross income (revenue) from the sale of goods to the amount of working capital of the company. The calculation does not include VAT and excise duty. With a decrease in this indicator, we can say that there is a slowdown in turnover.
If turnover accelerates with a constant sales volume, then the company will have to use fewer working capital. With an increase in turnover, the enterprise spends a smaller amount of reverse funds, which allows it to use material and financial resources more efficiently. Working capital released from production can be used in other industries. So, the turnover ratio of working capital shows the whole set of processes in the company: a decrease in capital intensity, an increase in productivity growth rates.
The main factors affecting the turnover of current assets are the reduction in the duration of the overall technological cycle, the improvement of sales and supply conditions, the improvement of the organization of production and technology, the clear organization of settlement payment relations.
Accounts receivable turnover ratio
In the process, enterprises have to give commodity loans to consumers, as a result, receivables accumulate. The indicator of its turnover determines the number of revolutions per year of the funds invested in the calculations.