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Total Asset Turnover Ratio

Asset turnover ratio is another important measure of financial analysis of a company. This ratio indicates that how well a company is able to convert its assets into revenue. Total assets turnover ratio is concerned with the revenues made and not profit. For measuring profit relative to assets another ratio, Return on Assets is used, is used. This ratio is useful in knowing how efficiently company manages its assets and convert them back to sales revenue. According to Kaplan Financials ‘Asset turnover measures management’s efficiency in generating revenue from net assets utilised by the business’ (Kaplan Financial, 2007).

Total Assets turnover ratio was calculated for Google Inc and Microsoft. For Google Inc the ratio came out to be 0.584 in 2009, 0.5068 in 2010 and 0.522 in 2011. This means that in 2009 Google Inc earned $ 0.584 for every $1 invested in assets. In 2010 Google Inc has earned $ 0.5068 for every $1 invested in assets and in 2011Google Inc has earned $ 0.522 for every $1 invested in Assets. Similarly the ratio calculated for Microsoft came out to be0.750 in 2009, 0.725 in 2010 and 0.6434 in 2011. This means that Microsoft is earning $ 0.750 for every $1 invested in Assets. In 2010 it is earning $ 0.725 for every $1 invested in assets. And in 2011 its earning further decreases and reaching to $ 0.6434 for every $1 invested in assets. Keeping the above things in mind, it can be inferred that in comparison to Microsoft, Google Inc is performing well. Microsoft earning is constantly decreasing for a period of three years under consideration. Google Inc earning does decrease in 2009-2010. However in 2011 they manage to increase it.

Fixed Assets turnover

Fixed assets ratio is another important ratio. This ratio measures effective and efficient company is in generating sales by using fixed assets. This ratio is concerned with the productivity of fixed assets in generating revenues.

Fixed assets ratio calculated for Google Inc came out to be 2.04 in 2009. In 2010 the ratio declined to 1.80 representing a 11.76 % decrease, showing that in 2010 Google Inc has overinvested in the property plant and equipment. In 2011 Google Inc has done well in increasing the fixed assets ratio to 1.912 representing a 6.22% increase. Microsoft fixed ratio came out to be 2.042 in 2009, In 2010 they have done well in growing the sales to fixed assets by 2.052 representing 0.48% increase. In 2011 the ratio calculated came out to be 0.249 representing 0.87% increase. Thus comparatively we can say that Microsoft Fixed assets ratio is steadily growing. However Google Inc fixed assets ratio is higher than Microsoft, indicating that Google Inc has less money tied up in fixed assets for each unit of sales.

Basic Earning Power Ratio: