TABLE OF CONTENTS In addition to providing information on current assets and their role in the business cycle, the balance sheet offers a wealth of data that can be used to measure the relationship between the utilization of total assets, profitability and supply chain execution. Table 13.1 provides a short list of tools that NikoTech management can use to measure the productivity of all assets employed in the supply chain in order to take a comprehensive view of asset performance. Interpretation of NikoTech's performance is as follows.
| $ in Millions | |||
|---|---|---|---|
| Y1 | Y2 | Delta | |
| Working Capital | $1,059 - $303 = $756 | $1,212 - $407.4 = $804.6 | $48.6 |
| Current Ratio | $1,059/$303 = 3.5 times | $1,212/$407.4 = 2.97 times | (0.53) times |
| Quick Ratio | $579/$303 = $1.91 | $552/$407.4 = $1.35 | ($0.56) |
| Inventory Turnover | $990/$480 = 2.06 times | $1,239/$660 = 1.9 times | (0.15) times |
| Receivables Turnover | $1,440/$285 = 5.05 times | $1,698/$450 = 3.8 times | (1.25) times |
| Payables Turnover | $990/$285 = 3.47 times | $1,239/$360 = 3.44 times | (0.03) times |
| Total Asset Turnover | $1,440/$1,599 = $0.90 | $1,698/$1,776 = $0.95 | $0.05 |
Regardless of company, industry or business model, working capital is one of the first calculations an analyst performs on an organization's financial statements. Oddly enough, although companies place a great deal of emphasis on working capital, few people outside of financial circles understand its real meaning or what supply chain activities are behind its derivation. Working capital is defined as the difference between current assets and current liabilities. That is...
