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The Asset Turnover Ratio measures how efficiently management uses the company’s assets to generate sales revenue. The ratio compares the amount of net sales to its total assets. It’s a standard efficiency ratio, as it gives investors an idea of how well management runs the company.

What is the Asset Turnover Ratio

The ratio, also known as the Total Asset Turnover Ratio, can determine the company’s performance and an excellent indicator of management’s efficiency. We usually calculate it on an annual basis, but we can implement it for various periods.

The metric is a crucial part of the DuPont analysis, where we split the Return on Equity (ROE) into three components, one of which is the Asset Turnover Ratio. …

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When a company hires employees, they provide it with services. In turn, the company, as their employer, reimburses their time spent with a remuneration package.

This usually consists mostly of a salary but can include various other benefits, some of which may be mandated by law or local legislation. One of those benefits is the annual paid vacation.

IAS 19 Employee Benefits

IAS 19 provides guidance on the matter of accounting treatment for such benefits. It requires that we match the expense for employee benefits to the period where they earned the entitlements.

The standard stipulates the entity has to recognize an expense whenever the employee provides services in exchange for employee compensation. Companies also have to record a liability if they pay the benefits in the future. Keep in mind that, for this article, I will use liability, obligation, and provision interchangeably. …

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Accounting standards (IRFS and US GAAP) require that we apply a conservatism principle when we assess the value of assets and transactions.

The Net Realizable Value (NRV) is the amount we can realize from an asset, less the disposal costs. The most often use of the method is when we evaluate inventory and accounts receivable balances.

Companies usually record assets at cost (how much it cost to acquire the asset). Sometimes the business cannot recover this amount and must report such assets at the lower of cost and Net Realizable Value.

NRV is a conservative method as it estimates the real value of an asset, after deducting selling costs or costs of disposal. …


Dobromir Dikov, FCCA

I write articles on financial analysis and modeling to share my experience within audit, accounting & reporting. Co-founder of

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