Financial Ratio Analysis - Advanced Asset Usage

Advanced Asset Usage

The advanced equations for this section are:

Fixed Asset Turnover =     Turnover    
Fixed Assets

Current Asset Turnover =     Turnover    
Current Assets

Capital Employed Turnover =     Turnover    
Equity Shareholders' Funds

Working Capital Turnover =     Sales    
Working Capital

Look at this as we try to unravel the more involved aspects of asset usage or turnover:

Vodafone plc 31 Mar 2002 31 Mar 2001
Consolidated balance sheet £m £m
Fixed assets    
Intangible Assets 105,944 108,853
Tangible assets 18,541 10,586
Investments 28,977 34,769
Total Fixed Assets 153,462 154,208

Look where the growth in assets is taking place - intangible assets. These intangible assets seem to have appeared between 1999 and 2000 and are probably the reason for such a dreadful total asset turnover ratio. Incidentally most of the intangible assets are goodwill, by the way. For the sake of argument, if we assumed that the goodwill had been around £100 million since it first appeared and then recalculated the total asset turnover ratio, we would find:

Vodafone plc 2002 2001 2000 1999 1998
Adjusted Total Asset Turnover Ratio 0.36 0.21 0.15 0.91 0.96

Making this adjustment makes a difference and it helps us to understand the underlying trend in the total asset turnover ratio; and taking goodwill into account in the way we have is the kind of adjustment that a financial analyst might make were he to look at Vodafone's financial statements.

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