Total Assets Turnover

The total assets turnover ratio, measures the turnover, or utilization, of all of the firm's assets. It is calculated as follows:

Total assets turnover = Sales
total assets

The value of Jimco's total assets turnover in 1993 is

$51,000,000 = 1.645 times
$31,000,000

industry average = 2.95 times

This ratio indicates that compared with other firms in its industry, Jimco's management has efficiently utilized its resources in generating sales.

Debt Ratios

Debt ratios show how a company's operations are financed. To much equity often means that management is not taking advantage of the leverage associated with long term-term debt. Financial leverage, a term used to describe the magnification of risk and return introduced through the use of fixed-cost financing such as debt and preferred stock.

There are two general types of debt measures: measures of the degree of indebtedness and measures of the to ability debts.

The degree of indebtedness measures the amount of debt against other significant balance sheet amounts. Two of the most commonly used measure are the debt ratio and the debt-equity ratio.

The ability to meet certain fixed charges is measured using coverage ratios: times interest earned and the fixed-payment coverage ratio.


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Finance For Strategic Management
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