Financial Statement Analysis

2671 WordsSep 22, 201511 Pages
Tutorial: Financial Statement AnalysisIn this article, we'll look at four evaluative perspectives on a company's asset performance: (1) the cash conversion cycle, (2) the fixed asset turnover ratio, (3) the return on assets ratio and (4) the impact of intangible assets. The Return on Assets Ratio Return on assets (ROA) is considered to be a profitability ratio - it shows how much a company is earning on its total assets. Nevertheless, it is worthwhile to view the ROA ratio as an indicator of asset performance. The ROA ratio (percentage) is calculated as: Average total assets can be calculated by dividing the year-end total assets of two fiscal The Fixed Asset Turnover Ratio Property, plant and equipment (PP&E), or fixed assets, is another of the "big" numbers in a company's balance sheet. In fact, it often represents the single largest component of a company's total assets. Readers should note that the term fixed assets is the financial professional's shorthand for PP&E, although investment literature sometimes refers to a company's total non-current assets as its fixed assets. A company's investment in fixed assets is dependent, to a large degree, on its line of business. Some businesses are more capital intensive than others. Natural resource and large capital equipment producers require a large amount of fixed-asset investment. Service companies and computer software producers need a relatively small amount of fixed assets. Mainstream manufacturers generally have around 30-40% of their assets in PP&E. Accordingly, fixed asset turnover ratios will vary among different industries. The fixed asset turnover ratio is calculated as: The Cash Conversion Cycle (CCC) The cash conversion cycle is a key indicator of the adequacy of a company's working capital position. In addition, the CCC is equally important as the measurement of a company's

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