Question

Question 6 .

wy 6. What are asset management ratios? For retail firms, what is one of the key considering a debt loan to a company management ratios? Why? Z What does the P/E ratio tell an outsider about a company? Why mil

Answer 1

Asset Management Ratios defines the comparison between the assets of company to its sales revenue.There are many kind of asset management ratios.

1) Accounts Payable Turnover ratio: It is calculated by dividing the total amount of purchases made on credit by the accounts payable. Low accounts payable turnover ratio is preferable.

Total purchases / Average accounts payable

2) Fixed Asset Turnover Ratio: It defines the comparison between sales revenue of company to its fixed assets.High Fixed Asset Turnover Ratio is preferable.

Sales Revenue / Total fixed assets

3) Inventory Turnover Ratio: It measures the number of times of inventory sold. low inventory turnover ratio is best for the industry.

Sales / Average inventory/365 days

Average inventory is Opening inventory+ closing Inventory / 2

4) Debtors Turnover ratio: It is defined as how many times of account receivable are collected in a year . High debtors turnover ratio indicates efficient management. so High ratio is best for industry.

Net receivables / average accounts receivables / 365

5) Asset Turnover Ratio: It defines the comparison between assets to sales. High ratio is best for the industry

sales / Average total assets

B) For retail business inventory turnover ratio is key management ratio. Because Inventory plays important role in retail business