Question

>Explain what information total asset turnover ratio provides (define), and what the results mean specifically to your company. Use complete sentences in your own words.

>Explain what information equity ratio provides (define), and what the results mean specifically to your assigned company. Use complete sentences in your own words.

> Explain what information Cash Flow on Total Assets ratio provides (define), and what the results mean specifically to your company.  Use complete sentences in your own words.

Answer 1

Total asset turnover ratio

Total asset turnover ratio is the ratio of the Companies sales to its total assets. It is measured to evaluate the operations of the business by measuring the ability of the company to efficiently produce sales.

A high total asset turnover ratio means that the company can operate with fewer assets, debt and equity compared to its weaker competitors.

The formula for total asset turnover is:

Total asset turnover = Net sales/Total assets

Shareholder Equity Ratio

The shareholder equity ratio shows the coverage of equity funds on the assets owned by the company. A low ratio means that the company has used debt as a source of funding for its assets. It also helps to understand how much shareholders would receive in the event of a company-wide liquidation.

The ratio is ascertained by dividing total shareholders' equity by total assets of the firm, and it represents the amount of assets on which shareholders have a residual claim. The figures used to calculate the ratio are taken from the company balance sheet

The closer a firm's ratio result is to 100%, the more assets it has financed with equity instead of taking on debt.

The ratio reveals how much a company depends on debt and how financially stable it may be in the long run.

Formula for the Shareholder Equity Ratio:

Shareholder Equity Ratio = Total Shareholder Equity/Total Assets

Cash Flow on Total Assets Ratio

Cash flow on total assets is a ratio that measures the efficiency of the company to generate cash flows from its operation using the assets owned by it. The cash flow on total assets ratio is calculated by dividing cash flows from operations by the average total assets.

Formula:

Cash Flows on Total Asset = Cash Flows from Operations/Average Total Assets

It is calculated to estimate when cash will be available and how much cash will be available for future operations. This ratio is used by the management to prepare budgets and future performance predictions.

Investors also use the cash flows to total asset ratio to estimate the quality of a company’s earnings. The ratio indicates the efficiency of the business in using its assets to collect cash from sales and customers. The higher the ratio, the more efficient the business is.