BUSM1010: Financing Enterprises

Question 3

Total Asset Turnover Ratio

The formula for this ratio is Net Sales/Total Assets

Atlas Pearls

The ratio of the company Atlas Pearls is as follows:-

Table 1: Asset Turnover Ratio

(Source: Self Created)

Embelton Limited

The ratio of the company Embelton Limited is as follows:-

Table 2: Asset Turnover Ratio

(Source: Self Created)

Fixed Asset Turnover Ratio

The formula for this ratio is Net Sales/FixedAssets

Atlas Pearls

The ratio of the company Atlas Pearls is as follows:-

Table 3: Fixed Assets Turnover Ratio

(Source: Self Created)

Embelton Limited

The ratio of the company Embelton Limited is as follows:-

Table 4: Fixed Assets Turnover Ratio

(Source: Self Created)

The above table reflects that Embelton Limited has performed well in case of Atlas Pearls in case of utilization of assets in order to generate higher sales. The asset turnover ratio is a metric that measures how efficiently a company makes use of the resources that it owns in order to generate revenue or sales. This metric analyzes the company's total gross revenue in comparison to the average total number of assets; as a result, it offers some insight into the effectiveness of the company's sales generation relative to the amount of assets it possesses. When compared to their liabilities, a company's assets are being utilized at a better degree of efficiency when the asset ratio is higher. Because it represents the generation of larger income in comparison to the value of a business's assets, a high asset turnover ratio is indicative of operational efficiency inside a corporation. This is because it was stated previously that a high asset turnover ratio signals operational efficiency. On the other hand, a low asset turnover ratio indicates the opposite, which suggests that a firm is not effectively employing its resources and may be facing issues from within the organization itself (Kurniawan, 2021).

Investors and creditors usually look for companies that have asset turnover ratios that are high since this suggests that the company is able to create income with a lower quantity of assets than its competitors who are less efficient (Qamara et al. 2020). As a consequence of this, the quantities of debt and equity that such businesses need to keep their operations going are reduced. When doing an analysis of the asset turnover ratio, it is important to look for recurring patterns or trends in the performance of a business over a specified amount of time. The technique consists of graphically depicting the data points on a trend line, which makes it easier to recognize any discernible patterns or gradual variations. It is essential to compare a company's asset turnover ratio to those of other comparable organizations operating in the same sector in order to have a full understanding of the resource use practices of a particular business. It is of the utmost importance to recognize that the asset turnover ratio could display distinct characteristics in different industries. Overall, from the analysis, it can be said that Embelton Limited has utilized its assets effectively.

References

Kurniawan, A. (2021). Analysis of the effect of return on asset, debt to equity ratio, and total asset turnover on share return. Journal of Industrial Engineering & Management Research, 2(1), 64-72.

Qamara, T., Wulandari, A., Sukoco, A., & Suyono, J. (2020). The influence of current ratio, debt to equity ratio, and total asset turnover ratio on profitability of transportation companies listed on the Indonesia stock exchange 2014-2018. IJIEEB International Journal of Integrated Education, Engineering and Business eISSN 2615-1596 pISSN 2615-2312, 3(2), 81-93.

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