How the assets within a business are managed will have a bearing on the overall performance of the business. 

But because the assets are held in the balance sheet, which is a document poorly understood by most managers, the assets will often not receive the attention they deserve.

Assets in the business will normally consist of Fixed Assets and Current Assets. 

Management’s ability to properly and efficiently manage these assets will have a significant influence on the performance of the business.

Managing Working Capital

FinGenie is primarily concerned with what is known as Working Capital the definition of which is Stock (inventory) plus Debtors (Accounts receivable) less trade Creditors (Accounts payable). 

The performance of the business is affected by the investment in working capital. The management will be buying stock for resale and selling it on to customers. 

If management buys too much stock, and it is not sold quickly enough, the business will have spent too much money on stock and this could have the effect of not having money to cover salaries or other expenses which will impact on the business's ability to operate. 

likewise, should the debtors be paying too slowly the business will not have enough money to operate effectively. The business needs to pay its suppliers (trade creditors), but terms should be negotiated such that creditors are not paid faster than the business is able to recover monies from its debtors.

The management of working capital is a critical function of management and is very important for the running of a successful business. The levels of the various components of working capital are measured in days ie Debtors Days is the time in the number of days it takes on average for the business to get payment on the sales it makes.

The financial measure we use is called Asset Turnover or t. It tells us how well a company manages its assets by determining the number of times by which the investment in assets turnover every 12 months in terms of revenues (sales generated). 

The higher the ratio the better the performance, but asset turnovers vary depending on the type of industry the business operates in.

How does this help the Business Owner / Manager? 

This shows how efficiently the assets are being managed. The asset turn will be affected by too much stock holding, debtors taking too long to pay as well as paying your suppliers too quickly. 

The FinGenie method of showing the values of these assets in terms of days, helps to identify excesses against optimum levels.