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QuestionsCategory: Investor Psychologyefficiency management of asset
cheng wong tang asked 3 months ago

Hi,
Is current asset / total asset ratio ,sales / current assets ratio are the same meaning?
we can use this ratio to find out the how efficiency the company using its asset to create revenue?
can use current asset / total asset and non-current asset / total asset to classify which industry the company belong?
thanks

Jieren Zheng replied 3 months ago

current asset/total asset ratios are like how much of their assets are park in liquid inventory/cash.

sales to current assets are something like amount of sales based on liquid inventory/cash.

I would think that what they are measuring would be hugely different.

Regarding industry, wouldn’t a look identify where is the company from? Or are you approaching via a quantitative data based approach?

cheng wong tang replied 3 months ago

I am reading a book about how to analysis the financial report
Trying to understand what kind of industry there are? from the above 2 ratio and theirs earning is generate from non current asset or current asset?
example: non-current asset /total asset=68%,current asset / total asset=32%
it is a capital intensify business then to know what are the items need to see like property,plant and equipment in order to understand the company have the plan to expand its business for further to increase its revenue by raise up its asset turnover

Sorry bothering you so much,I hope you understand what I mean cause my English in not so good.Thanks

2 Answers
Victor Chng answered 3 months ago

Hi Cheng Wong,
 
If you want to know how efficient the asset is being use to create revenue or profit. I think ROA will be the ratio to look at.
 
If you want to know whether the company is capital intensive, you can use the ratio that we had taught in IQ which is fixed asset/Total asset.
 
Fixed asset = inventory + PPE

cheng wong tang answered 3 months ago

Thanks

Victor Chng replied 3 months ago

Welcome Cheng Wong :)