Asset Management Firm Ratios Explained

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Asset management is important for any business. Evaluation of asset management ratios is a perfect way to measure own assets and make relevant conclusions. Balanced Scorecard is one of the best tools to perform this procedure. Check additional information about asset management firm ratios.

Financial control and evaluation is all important for any business, whether it is small or big. It is not a secret that every company sets financial goals above all. Making profits is the ultimate goal of any commercial business. That is why it is crucial to evaluate current company performance and measure progress on the way to implementation of strategic goals (as known, financial ones are among the most important). No matter what goals company top management sets, they are all subordinated to financial results, as shareholders has just one goal - increase of shares value.

What tools are used for financial control? There are many of them, in fact. But the problem is that personnel as a rule dislikes any controlling tools. Balanced Scorecard is different in this sense. This is an effective strategic management tool that combines features controlling and assessment management systems. Asset management is one of the most important parts of financial management system. Evaluation of asset management ratios can be effectively performed with Balanced Scorecard and its financial perspective in particular. Analysis of asset management ratios is the best way to evaluate how a company is managing its assets. Excessive investments in assets will lead to increase of operational capital which is not always good. Inefficient assets investments will result in sales drop, decrease in profitability and consequently decrease of share prices.

That's why it is important to evaluate asset accounts and compare them to other companies. One simply has to analyze how much competitors have invested in assets. Besides, it is highly recommended to keep track of asset investments over the years. This article will focus on major asset management ratios used in financial evaluation with BSC.

Inventory turnover ratio is known as one of the most important and widely used key performance indicators in asset management. In case the company sells products (none virtual but physical), almost no ratio is considered important. This key performance indicator is calculated in the following way. One has to divide net sales from income statement by inventory. The obtained number demonstrates number of time inventory has been restocked and sold every year. High number warns on possible stockouts. A low inventory turnover ratio signals about obsolete inventory.

Day's Sales Inventory ratio shows top managers the amount of days needed to sell inventory. Logically, the lower this number, the better, as it is always better to use sell products that without keeping them in warehouses or stores shelves. Being aware of inventory turnover ratio, calculation of day's sales inventory ratio is quite simple. One has to divide 365 days by inventory turnover. The obtained result is day's sales inventory ratio.

Receivables turnover displays how fast a business collects on its sales and how will often as to clean up old totally collect accounts receivable. It is the ratio of sales to accounts receivable. As a rule, the higher the receivables turnover is, the better, since it means timely collection of credit accounts. Sure this is not the full list of asset management ratios, but it will certainly help those who are interested in this issue.

If you are interested in asset management firm ratios, check this link to find out more about asset management firm ratios. Also, you can check other articles in Case Studies and Best Practices category.

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