Equity turnover ratio and other indicators for evaluating the organization's business activity

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:44

An important step in the analysis of economic activity should be called the assessment of various parameters, including business activity. One of the indicators used for this is the equity turnover ratio. Business activity is characterized by how dynamically the organization develops, what goals and to what extent are achieved. All this is reflected in cost and relative indicators.

This procedure allows you to judge how effectively it uses the available funds. This direction of the analysis of economic activity is to study not only the level, but also the dynamics of various coefficients. Business activity is manifested primarily in the speed of turnover of the funds available to the organization. Since the sooner the capital makes a “circle”, the greater the volume of production the enterprise will be able to acquire and sell without investing additional finance. Slowdowns, delays that occur onany stage, lead to a deterioration in the financial stability of the company. If the equity turnover ratio, on the contrary, increases, then such an important indicator as the VOR increases. However, there is one important feature. The equity turnover ratio can play a negative role, worsening the financial condition of the enterprise. This happens if there is a loss as a result of the sale of goods.

Factors affecting the level of business activity indicators and their dynamics

There are quite a lot of them, we will list only a few. Firstly, the equity turnover ratio and profitability are affected by the quality of management and the level of organization of the production process. The second factor is the structure and main sources of funding. Thirdly, the rationality of the use of available resources. The fourth factor is production volumes, product quality and its structure. Production costs are also important.

Characterization of some coefficients

This is a number of indicators of the turnover of fixed assets, equity and circulating capital, assets, inventories. The first indicator reflects how effectively the organization's OPF are used in a given period. This is a return on investment. The turnover ratio of working capital indicates the rate at which both material and monetary resources of the organization are returned. Next, a few words should be said aboutcoefficient characterizing equity capital. It affects various aspects of the activity of an economic entity. It can talk about an excess (lack) of implementation. In addition, this indicator reflects the rate of return on invested capital, as well as the activity inherent in invested investments. A too high value of this parameter, as well as a low one, is not very good for the enterprise. In the first case, a significant excess of sales over invested funds is the reason for attracting more borrowed funds. The second option indicates the presence of downtime of some share of the main assets, which means that it is advisable for the enterprise management to think about investing in a more efficient source of profit. The turnover ratio of current assets indicates how many turnovers are made in one production cycle. And the latter can be otherwise called the speed of implementation. As a rule, the higher the value of the parameter under consideration, the more liquid the capital, and, accordingly, the more stable the overall state of the organization from an economic point of view.