Total assets or Non-current assts/ Balance sheet/ ROA/ Current assets

 

Understand the Assets 

Fixed assets are plant, Equipments, Land, and Building, which assets could not convert as a cash within one year. Some liquid assets can easily convert as cash within 12 months. The liquid assets will keep smoothly the business operation is called working capital or current assets. The Long-term assets (Non-current assets) can be used for business growth.  

Current Assets

Cash and cash equivalents 

inventory

Accounts receivable 

Prepaid advances

Cash and cash Equivalents: cash held in the bank,  short-term  bank deposit,  and marketable securities. If a company can hold more money without debt and without raising cash through equity that is a good sign for a great investment opportunity. That means, the company has been piling up cash without additional capital. In contrast, a company holds less cash and carries a high debt that company”s earnings will go out  for interest expenses.  

Inventory:  inventory doesn”t matter to service industry but manufacturing industry should craft a strategic inventory policy. The raw material and semi-finished goods would turn to finished goods to sell then it will come back as cash therefore the  inventory cycle will be continuing   ever. It is measured with percentage of COGS that higher percentage means, the company is following poor inventory policy on the other hand, lower the percentage of COGS that company is tactically managing its inventory. 

Inventory / COGS = 

Days of inventory = Inventory * COGS / 365 days which helps to make a financial model. 

Accounts Receivable:  the balance of money due to firms that delivered goods to customers but  yet not  paid.. Some companies would pay 30 days, sometimes it  may go to 120 days . Long days of the pending bills would erode the company's cash flow. This is usually calculated by the number of days receivable. A company is in dominant position in the industry probably they could collect payment so quickly at the same time if a company is in high competitive environment they can not demand payment in quick term. 

Days of account receivables : Account receivables * Net sales / 365 days    

Prepaid expenses: the companies need to pay advances to contractors and Advertising, and place orders for new machines and equipment. 

Non- current assets or Long - term assets

The non-current assets are Tangible and Intangible assets. Tangible assets are known as fixed assets that are : Plant, Machinery, Land, and Building.  

When we look at the plant and equipment section of the balance sheet- a company is constantly installing new machines and equipment, that company is facing bottleneck competition with their rivals. In a highly competitive environment companies need to upgrade a manufacturing facility to make a new product design to retain its market share. It leads to more debt and lower Equity return. 

 In contrast, a company is spending less money to invest in a plant & machine to compare with revenue that company goes over with less debt or no debt. So, operating profits will turn to  shareholders' funds. Here it we may use a calculation to know that company is appropriate to long-term investment , *

Good will:  a company when acquired other company if paid off  excess prices than  book value, that will be recorded in Goodwill account, if a company has involved in many acquisition, that account has been accelerated in year by year, perhaps, if Good will stay at same number that company has not involved any acquisition or takeover in below book value.  

Patent :  patent and trademarks are intangible assets generally which items show in lesser  value in the Balance sheet. Some innovative companies are licensing their patents to other companies that have a patent fee recorded as other income into the income statement. 

Deferred tax” A company has not yet paid its tax over a year that number presents in the Deferred tax item. 

The total assets category represents a company's assets value: the current assets metric how much cash can generate within a year for their operating expenses, the Long-term assets how much funds has been  invested for fixed assets  over the years. The Equity Analysts would find some ratio  through the asset section of the balance sheet . 

Return on asset :  this ratio calculates how much a company generates revenue through  Total assets. Which reveals the company's management efficiency. For Example Bajaj Auto ROA is around 16 percent , at the same time Hero Motor”s ROA around 13 percent which is lower than Bajaj Auto that point out Bajaj is utilizing assets for revenue generation than Hero motocorp.  Generally, large corporations ROA will be moderate than mid and small cap industries. 

Above 20 percent is better but below 10 percent is the under performance. 

Return on asset = Net income / Total assets 

Asset turnover Ratio:  which is likely to Return on assets but slightly vary from that ratio. ROA will take over the years of Total assets but Asset turn ratio will specify accounting period asset allocation, higher the ratio indicates that the company efficiently uses its assets to revenue generation, lower the ratio means company is involved in reckless investment decisions.

Total sales = Assets at start of the year - Assets at end of the year.