One of the financial indicators is important, demonstrating the ability to use short-term assets effectively, the key is to spin short-term assets (TSNH). So spin TSNH what is the meaning of it for business out why, how to improve this indicator? Let's AccNet explore through the article below!
1. The concept of rotation property what is short term?
Asset turnover short-term (Short-term asset turnover) is a financial index expresses the number of times that short-term assets of the business are converted into revenue in a given time period (usually a year).
2. Formula for calculating rotation short-term assets and applying practices
2.1. Formula for calculating rotation short-term assets
Spin short-term assets = net Sales / Assets short-term average
- Net revenue: total revenue that the business obtained after deducting deductions such as trade discounts, discounts, sales, sales returns, value-added tax.
- Assets short-term average: The average value of short-term assets at the beginning and end of the period, including the account as cash, inventory, accounts receivable, other current assets other term use under a year.
2.2. Applying the formula in financial analysis
Comparing only the number of revolutions short-term assets over the accounting period to help businesses assess trends in use of assets. If this indicator decreased, businesses need to check the cause:
- Inventory increased by no control.
- Duration debt collection spans.
- Policy, asset management, yet effective.
Spin TSNH is also a measure to compare business with competitors in the same field.
2.3. Illustrative examples practical
Case 1: A manufacturing enterprise has net sales in the year 2023 is 500 billion in short-term assets the beginning of the period is 200 billion, and the end is 220 billion. Distance calculator:
- Assets short-term average = (200 + 220) / 2 = 210 billion
- Spin short-term assets = 500 / 210 = 2,38 times
This means that in years, business has transformed short-term assets of revenue to 2.38 times. This indicator the higher the effective use of short-term assets as possible.
3. Sense of rotation TSNH in business
3.1. Efficiency measurement using short-term assets
Only the number of revolutions TSNH provide an accurate measure of how businesses are leveraging the assets such as cash, accounts receivable, inventory to generate revenue.
3.2. Affect the liquidity, efficiency of operations of the business
- Asset turnover short-term low might indicate that the troubled business in the conversion of short-term assets into cash. This can weaken the ability to pay its short term debts.
- If the business is improved spin TSNH, they can reduce the costs of storage, speed up recovery of debts and maintain steady cash flow.
3.3. Contact with the index and other financial
Spin short-term assets do not operate independently but closely related to financial indicators such as:
- ROA (Return on Assets): this indicator increased when the business using assets efficiently to generate profits.
- ROE (Return on Equity): Business has rotation TSNH high often have the ability to increase return on equity.
- Working capital: spin TSNH directly affect the speed of rotation of working capital, the impact to the overall effect.
4. The factors affecting the rotation short-term assets
4.1. Scale business, industry business
Small businesses often have rotation TSNH higher due to their focus on the products/services quickly generate revenue. Industry business, also strongly influenced:
- Retail industry: There are rotation short-term assets because the sales cycle fast.
- Manufacturing industry: Often have rotation lower depending on the production cycle is longer.
4.2. Policy, asset management, short term
- Inventory management is not effective, leading to excess reduces the rotation property. For example: Apply the method of JIT (Just In Time) can reduce the amount of inventory, increasing the efficient use of assets.
- Duration debt collection long will negatively affect the rotation property. Businesses need to apply the credit policy reasonable, to strengthen the debt.
4.3. Strategic business cycles, production activities
- Business strategies focus on product/service short-life will speed up revolving assets.
- Long production cycle slows down the conversion of assets into revenue. For example, In the construction industry, property is often locked so long ago in the long-term project, leading to spin short-term assets low.
5. How to improve only the number of revolutions TSNH in business
- Shorten the term of payment for customers that still maintain the business relationship. For example: Given the discount when customers pay soon.
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