This reduces asset turnover ratio. This can be done by outsourcing the collection task to collection agency, hiring an employee overseeing accounts receivable or reducing the debtors credit period to at least industry norms. Improve Revenue: Improving revenue is easiest way to a healthy asset turnover ratio.
The company needs to move its stock effectively and engage in promotional activities through advertisements. The company can also the examine the warehouse to ascertain whether there are slow moving stocks held in the warehouse. The company should find a way to move those slow-moving goods quickly. Liquidate Assets and Improve Efficiency: The company needs to have proper asset plan which deals with purchase and sale of assets strategically.
Obsolete assets should be sold quickly as they are of no use to the contribution to sales and only makes the balance sheet look poor to the stakeholders.
Assets frequently used should be regularly maintained in a scheduled manner while on the other hand, assets that are not frequently used, the company should arrive at strategic decision-making process whether to discard, replace or repair the assets.
Bottleneck activities should be removed on the spot. If the company has delivery vehicles, the management should have a plan in place making sure that these vehicles leave the warehouse at full capacity delivery all the goods traveling the least. Sell any fixed assets that do not improve your bottom line on a regular basis. Lease equipment to make up for the sold assets. Leased equipment does not count as a fixed asset.
If you count sales when you actually collect the money from customers, you may not be collecting quickly enough. This will keep your sales figure low during any given period. Find ways to collect more quickly. You can shorten the amount of time you give customers to pay, assign an employee to collect on old invoices or hire a collection agency to collect on delinquent accounts.
You should analyze how products move through your company to the customer to see if you are being efficient. You may have a slow delivery system that holds up the process of getting goods to customers and collecting payments on them. Computerize your orders, inventory and billing so that you can improve cash flow. This will show up in your sales figures and improve your asset-turnover ratio. Obsolete or unused assets should be liquidated quickly.
Assets, that are not used frequently, should be analyzed to see whether there is a sense in retaining those. Basically, the company should sell those assets that do not add to the bottom line regularly. Another efficient way is to lease assets, instead of buying them.
Any leased equipment is not counted as a fixed asset. The asset turnover ratio could be low because of the inefficient use of assets. The company should analyze how it uses the assets and ways to improve the productivity of each asset. The output should increase without any significant increase in any other expenses. The Slow collection of accounts receivables will lower the sales in the period, hence reducing the asset turnover ratio. The company should focus on quick collection practices.
This can include outsourcing the delinquent accounts to a collection agency, hiring an employee just for collecting pending invoices and reducing the amount of time given to customers to pay. The company needs to check its inventory management to figure out the time spent in the movement of the goods throughout the process. The company should invest in technology and automate the order, billing and inventory systems.
This will improve sales and increase the asset turnover ratio. Companies need to keep track of the asset turnover ratio. This ratio helps the company to measure how productive the business is.
And how much revenue it generate from its investment in the assets. A high asset turnover ratio is a sign of better and efficient management of assets on hand. So, the companies need to analyze and improve their asset turnover ratio at regular intervals. Your answer:. Correct answer:.
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