Asset Utilization Analysis

Question 1

Asset turnover and what does it illustrate

Answer 1

Revenues/Total Assets - shows how efficiently company uses assets to generate revenues. 1.12 for every $1 of assets $1.12 of revenue generated.

Question 2

PPE Turnover and what does it illustrate?

Answer 2

Revenues/PPE - How efficiently company utilizes fixed assets

Question 3

cash turnover

Answer 3

revenues/cash - reveals number of times cash is turned over in a period

Question 4

Cash days

Answer 4

Cash X 365/Revenues - shows how many days cash turns over or how many days cash reserves cover no revenue

Question 5

A/R Turnover

Answer 5

Revenues/A/R - how efficiently company is collecting revenue using assets

Question 6

A/R Days

Answer 6

A/R X 365/Revenues - average number of days that it takes customer to pay the company for sales on credit

Question 7

Inventory turnover

Answer 7

Cost of Goods Sold/Inventory - number of times a business sells and replaces its stock of goods (revenue can be used as numerator if needed)

Question 8

Inventory days

Answer 8

Inventory X 365/COGS - Shows average number of days a year it takes company to sell and replace inventory

Question 9

A/P Turnover

Answer 9

COGS/Accounts payable - measures how many times a company is able to pay its creditors over a period of time.

Question 10

A/P Days

Answer 10

A/P X 365/COGS - Shows average number of days to takes company to pay creditors.

Question 11

What is simple definition of working capital?

Answer 11

Difference between a company’s current assets and current liabilities

WC = A/R + Inventory - A/P

Question 12

What is the working capital funding gap?

Answer 12

Difference between when a company pays for a good and when it collects on the sale of that good from its customer.