A concept indispensable when evaluating the effective use of assets is current assets average. This is not just a financial index which is also a tool to support businesses to plan, control cash flow, short-term efficacy. This article Accnet will provide comprehensive perspective on the concept of mobile assets, average calculation, the role of it in managing business finance. In particular, the content will guide detail, help businesses understand, effective application in practice.
1. Assets on average, what is?
Assets average is the average value of the assets that the business owns in a certain period of time, usually an accounting period (month, quarter, year). This is an important indicator to evaluate the effectiveness of using short-term assets of the business.
Assets average reflects the average value of the property is short-term nature, easily converted into cash, including cash, inventory, receivables.
Assets average difference compared to fixed assets?
- Duration of use: Assets often be converted within 1 year, while the fixed assets have the time long-term use.
- Liquidity: liquid Assets are likely to convert into cash more quickly than fixed assets.
According to the financial statements in the year 2023 on assets average by industry:
- The retail sector: Assets on average, accounted for 60% of total assets.
- Manufacturing sector: current Assets average ranged from 40% to 50% of total assets, with inventory accounted for the majority.
2. Formula for calculating liquid assets average
2.1. General formula
Assets average = (current Assets beginning of period + Assets end of period) / 2
2.2. The meaning of the formula
- Reflected liquid assets average: to Help businesses understand the extent of use of mobile assets in an accounting period.
- The basis for the financial analysis: Is the indicator platform to calculate the financial indicators other as spin liquid assets, quick ratio, the ratio liquid assets/short-term debt.
- Support working capital management: Ensure business not to backlog capital too much or deficiency of short-term capital.
2.3. Illustrative example
Business X has data assets as follows:
- Assets beginning of period: 15 billion VND.
- Assets end of period: 20 billion VND.
Apply the formula: current Assets average = (15+20)/2 = 17.5 billion VND
2.4. Note when calculating the
- Data start and end should be checked for accuracy from financial statements.
- In case there are large fluctuations in the period, to consider assets in timelines different to the average data more accurate.
3. The role of mobile assets average in business management
3.1. Optimize working capital
Assets average is a tool to help businesses allocate capital efficiently:
- Avoid excess working capital: Decrease the opportunity cost when the capital equipment backlog in inventory or accounts receivable.
- Avoid capital deficiency: Ensure liquid assets sufficient to maintain active short-term trading.
For example: A business know that the property hosted average of yourself is 10 billion VND and the cycle of debt payments is 30 days. If working capital is not reached this level, the business may have difficulty in payment of debt.
3.2. Health assessment short-term financial
Assets average suggests the possibility of liquidity, asset management, and short-term. Relevant indicators:
- The ratio of assets = liquid Assets/short-term debt. If this ratio is
- Quick ratio = current Assets (excluding inventory)/current liabilities
For example:
- Current assets: 15 billion VND.
- Short-term debt: 10 billion VND.
Ratio liquid assets/short-term debt = 15/10=1.5, meaning that businesses have the ability to pay its short-term good.
3.3. Application in financial planning
Based on assets, on average, businesses can:
- Planning cash flows: Determine the capital necessary to ensure liquidity.
- Planning, order entry, production: Based on inventory levels, on average.
- Give credit policy match: control receivables from customers.
Practical examples: A business production forecast assets average of states to be 20 billion VND. With the ratio of liquid assets/short-term debt target is 2:1, business plan in order to maintain short-term debt at the level of maximum 10 billion VND, ensure liquidity and financial health.
4. The factors that affect the assets average
4.1. Fluctuations of inventory
Inventory accounts for a large proportion of liquid assets. Therefore, any fluctuations about inventory are directly affecting assets, on average.
- Inventory management poor: Causes backlog capital, reducing the effective use of assets.
- Revenue growth: the need for reserve larger inventory.
Solution: application method, inventory management optimization as EOQ (Economic Order Quantity) or ABC analysis for inventory reduction is not necessary.
4.2. Receivables
Receivables from customers are important factors in assets. If the business is not managed well, debt stretching will increase the assets average that does not bring realistic cash-flow.
- Status: Customers delayed payments made business difficult to turn round capital.
- Solution: Apply the policy to reasonable credit (credit limits, billing period). Monitored accounts receivable, apply reminder tool automatically.
4.3. Cash flow management
Strong cash flow help businesses maintain assets average at optimal levels. Deficiency of cash flows usually occur due to:
- Conversion cycle, cash length: inventory backlog, public debt is not recovered on time.
- The cost of short-term high: Pressure from interest expense or pay the short term debts.
Solution:
- Monitoring cycle cash conversion (Cash Conversion Cycle): CCC = inventory Time + Time to collect debts - Time payment of the debt
- Speed up recovery of the debt, reducing the duration of inventory to improve cash flow.
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5. How to optimize mobile assets average
5.1. Minimize receivables
Apply the policy to reasonable credit:
- Just give credit for customers with good payment history.
- Shortening the credit period.
Use software asset management business Accnet Tài sản: Tự động hóa quy trình theo dõi, nhắc nhở thanh toán.
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Benefits highlights:
- Manage the entire property information
- Supports calculate asset depreciation accurate
- Scheduling maintenance, repair, property alerts, timely
- Provide detailed reports on value, performance, usage history, property
- Connect sync with accounting software and the other management system
Phần mềm Accnet Tài sản – comprehensive solutions to help businesses optimize asset management, reduce costs, improve the efficiency of use. Software experience today!
5.2. Optimal assets average by managing inventory effectively
- ABC analysis: a Focus group manager of importance.
- Application EOQ: Calculate the number of order optimal to reduce the cost of storage.
- Integrated warehouse management system (WMS): track, optimize inventory in real time.
5.3. Accelerate cash flow
- Increase speed to collect the debt: Take out the policy discounts to customers early payment.
- Optimize costs short-term: to Cut the expenses do not need to improve cash flow.
- Search for funding short-term: Apply the credit package deals for business.
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