Supply Chain Vector [Electronic resources] : Methods for Linking the Execution of Global Business Models With Financial Performance نسخه متنی

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Supply Chain Vector [Electronic resources] : Methods for Linking the Execution of Global Business Models With Financial Performance - نسخه متنی

Daniel L. Gardner

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Measuring Total Assets

After considering the importance of fixed assets as well as the impact of depreciation on financial reporting, how does an organization measure the return not just on current assets but on all of the assets that the company has on its books? In many cases, the value of fixed assets far outweighs current assets on a company's balance sheet. However, in the case of NikoTech, current assets are much higher than fixed in Y2, at $1.212 billion and $564 million, respectively.

Although this may be further indication that NikoTech is a small player in the electronics manufacturing services field, this comparison can be interpreted to mean that compared to its manufacturing capacity, the company has too much money tied up in receivables and inventory. No matter how this fact is interpreted, the inclusion of fixed assets in overall performance is paramount to accurate supply chain measurement.

Two powerful tools that are used to measure the productivity of total assets are total asset turnover and return on total assets. Considered classic measures of asset utilization, their value has not diminished with time. In order to fully understand the significance of each ratio, however, it is first necessary to recognize that both incorporate elements of the balance sheet and income statement. This combination of variables links the productivity of assets with the profitability of operations, the two most basic elements of supply chain measurement. As both ratios are calculated and interpreted, it is also very important to make the distinction between the meaning of turnover and return in measuring supply chain activities.

When referring to turnover, it usually involves a comparison between an asset and the sales generated as a result of possessing that asset. This was the case for the inventory/sales and receivables/sales ratios, where sales levels were matched against the levels of inventory and receivables (allegedly) necessary to generate those sales. The total asset turnover ratio is similar to these calculations except that it includes all assets in the denominator and not just the inventory or receivables line item. With net sales in the numerator and total assets in the denominator, this ratio reveals the productivity of all assets the company has employed relative to the sales figure achieved for the period in question.

Return differs from turnover in that it compares the bottom line profitability figure to total assets, a calculation that gauges the performance of the income statement relative to the value of all assets on the balance sheet. This natural link between the balance sheet and income statement goes much deeper than total asset turnover because it uses the raw profit figure after all supply chain and related expenses are accounted for. When both the turnover and return on asset utilization are measured, the supply chain panorama comes into sharper focus.

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