Definition:
Asset management ratios are financial ratios that assess how efficiently a company utilizes its assets to generate revenue. They provide insights into a company’s operational efficiency and its ability to maximize returns from its assets.
Common asset management ratios include:
- Inventory turnover ratio: Measures how efficiently a company manages its inventory.
- Accounts receivable turnover ratio: Measures how efficiently a company collects payments from customers.
- Accounts payable turnover ratio: Measures how efficiently a company pays its suppliers.
- Asset turnover ratio: Measures how efficiently a company uses its assets to generate sales.
Why are asset management ratios important?
- Efficiency evaluation: These ratios help evaluate a company’s operational efficiency and its ability to generate sales from its assets.
- Cash flow management: A high inventory turnover ratio and a high accounts receivable turnover ratio can improve a company’s cash flow.
- Financial analysis: Asset management ratios are used in financial analysis to assess a company’s overall financial health.
In essence, asset management ratios provide valuable insights into a company’s operational efficiency and its ability to generate sales from its assets.
