the total operating revenue by the total assets employed by the individual. Higher asset turn indicates higher profitability as every extra use of the asset gives an additional surplus and lower asset turn indicates lower surplus or losses as lower utilisation of assets gives higher costs (for instance depreciation) compared to the revenue generated by the assets. One can decide to sell an asset as it gives a higher cost than that of its revenue, i.e loss.
Liquidity & solvency position: Liquidity position can be assessed by computation of acid-test ratio. Higher the acid-test ratio, better is the liquidity of the individual. Solvency position can be evaluated with the help of the debt-equity ratio. Lower the debt equity figure, better is the solvency of the individual. One can compute the interest cover to find out the number of times his operating earnings can be used to meet the interest obligations. Higher the interest cover, better is the performance of the individual. These measures can also be computed for the previous years to know the trend.
Conclusion: If one can compute the above stated numbers and compare it with the previous figures, this exercise would offer clarity in her financial journey to create wealth. Remember what gets done is what gets measured.
* The writer teaches accounting & finance courses at IIM Ranchi