Current Asset Turnover
factor.formula
Current Asset Turnover:
Average current assets:
in:
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Refers to the total operating income of the company for the most recent 12 consecutive months. TTM (Trailing Twelve Months) stands for rolling 12 months, which is a commonly used financial data calculation method that can reflect the company's recent operating conditions and avoid the volatility of a single quarter's data.
- :
Refers to the average value of current assets over a certain period (usually one year). It is calculated by adding the current assets at the beginning of the period to the current assets at the end of the period and then dividing by 2. This averaging process can smooth the fluctuations in current assets on the balance sheet and more accurately reflect the level of current assets of the company over a period of time.
- :
Refers to the total amount of current assets at the beginning of the examination period (such as one year). Current assets usually include cash, short-term investments, accounts receivable and inventory.
- :
Refers to the total amount of current assets at the end of the examination period (such as one year).
factor.explanation
Current asset turnover reflects the efficiency of a company in generating revenue using its current assets (such as cash, short-term investments, accounts receivable, and inventory). The higher the ratio, the more efficient the company is in using its current assets to generate revenue. Specifically, a high turnover ratio means:
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Efficient asset management: The company is able to quickly convert current assets into sales revenue, reducing idle funds.
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Strong operational capabilities: The company is able to efficiently manage its daily operations, including sales, production, and inventory management.
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Potential profitability: All else being equal, a higher turnover ratio generally means that the company has stronger profit potential.
However, there may also be some risks with too high a turnover ratio, such as:
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Insufficient inventory: In pursuit of high turnover, companies may hold too low inventory levels, resulting in an inability to meet customer demand in a timely manner.
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Poor accounts receivable management: In order to speed up revenue recognition, companies may overly relax credit policies, resulting in increased bad debt risk.
Therefore, when evaluating the current asset turnover rate, it is necessary to conduct a comprehensive analysis based on the specific circumstances of the enterprise and the characteristics of the industry. We should not simply pursue a high turnover rate, but should pay attention to the operational efficiency and risks behind it.