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The amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales in
dollars by assets in dollars.

Formula:

Also known as the Asset Turnover Ratio.

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Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher
the number the better. It also indicates pricing strategy: companies with low profit margins tend to have
high asset turnover, while those with high profit margins have low asset turnover.


 


 
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An accounting and finance term used to describe how many days it will take for a company to convert its
working capital into revenue. The faster a company does this, the better.

To calculate days working capital, the following formula can be used:

Days working capital can be used in ratio and fundamental analysis.

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When utilizing any ratio, it is important to consider how this company has evolved over time and how it
compares to similar companies in the same industry. By comparing this ratio in a historical and relative
basis, you will get a better understanding of how efficient a given company actually is.
The debt ratio compares a company's total debt to its total assets, which is used to gain a general idea as to the
amount of leverage being used by a company. A low percentage means that the company is less dependent on
leverage, i.e., money borrowed from and/or owed to others. The lower the percentage, the less leverage a company
is using and the stronger its equity position. In general, the higher the ratio, the more risk that company is considered
to have taken on.
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As of December 31, 2005, with amounts expressed in millions, Zimmer Holdings had total liabilities of $1,036.80
(balance sheet) and total assets of $5,721.90 (balance sheet). By dividing, the equation provides the company with a
relatively low percentage of leverage as measured by the debt ratio.\

To a large degree, the debt-equity ratio provides another vantage point on a company's leverage position, in this
case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. Similar to the debt
ratio, a lower the percentage means that a company is using less leverage and has a stronger equity position.

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The capitalization ratio measures the debt component of a company's capital structure, or capitalization (i.e., the sum
of long-term debt liabilities and shareholders' equity) to support a company's operations and growth.

Long-term debt is divided by the sum of long-term debt and shareholders' equity. This ratio is considered to be one of
the more meaningful of the "debt" ratios - it delivers the key insight into a company's use of leverage.

There is no right amount of debt. Leverage varies according to industries, a company's line of business and its stage
of development. Nevertheless, common sense tells us that low debt and high equity levels in the capitalization ratio
indicate investment quality.

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As of December 31, 2005, with amounts expressed in millions, Zimmer Holdings had total long-term debt of $81.60
(balance sheet), and total long-term debt and shareholders' equity (i.e., its capitalization) of $4,764.40 (balance
sheet). By dividing, the equation provides the company with a negligible percentage of leverage as measured by the
capitalization ratio.

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The interest coverage ratio is used to determine how easily a company can pay interest expenses on outstanding
debt. The ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by the company's
interest expenses for the same period. The lower the ratio, the more the company is burdened by debt expense.
When a company's interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be
questionable.

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This coverage ratio compares a company's operating cash flow to its total debt, which, for purposes of this ratio, is
defined as the sum of short-term borrowings, the current portion of long-term debt and long-term debt. This ratio
provides an indication of a company's ability to cover total debt with its yearly cash flow from operations. The higher
the percentage ratio, the better the company's ability to carry its total debt.

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1. A resource with economic value that an individual, corporation or country owns or controls with the
expectation that it will provide future benefit.

2. A balance sheet item representing what a firm owns.

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1. Assets are bought to increase the value of a firm or benefit the firm's operations. You can think of
an asset as something that can generate cash flow, regardless of whether it's a company's manufacturing
equipment or an individual's rental apartment.

2. In the context of accounting, assets are either current or fixed (non-current). Current means that the
asset will be consumed within one year. Generally, this includes things like cash, accounts receivable and
inventory. Fixed assets are those that are expected to keep providing benefit for more than one year,
such as equipment, buildings and real estate.

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An asset that is used by a business in its daily or routine operations. Active assets can be tangible, such
as buildings or equipment, or intangible, such as patents or copyrights. Active assets are listed as assets
on the business's balance sheet.

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Businesses depend on active assets in order to function on a daily basis. Active assets stand in contrast
to passive assets, which may not be needed by the business at a given time in order to operate. Active
assets should also not be confused with active asset allocation, which is a type of investment strategy.

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A term referring to any non-traditional asset with potential economic value that would not be found in
a standard investment portfolio. Due to the unconventional nature of some of these investment
assets, valuation may be a problem.

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For most people, examples of alternative assets would include art and antiques, precious metals, fine
wines, rare stamps and coins, and other collectibles such as sports cards. However, to the very wealthy,
hedge funds, venture capital-related projects and infrastructure could be alternative assets. In either case,
alternative assets tend to be less liquid than traditional investments. Thus, investors who favor alternative
assets will have to consider a very long investment horizon.

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A business's ability to take productive resources and manage them within its operations to produce
subsequent returns. Asset performance is typically used to compare one company's performance over
time or against its competition. Possessing strong asset performance is one of the criteria for determining
whether a company is considered a good investment.
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Analysts use metrics like the cash conversion cycle, the return on assets ratio and the fixed asset
turnover ratio to compare and assess a company's annual asset performance. Typically, an improvement
in asset performance means that a company can either earn a higher return using the same amount of
assets or is efficient enough to create the same amount of return using less assets.