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Measures a company’s ability to utilize its assets to generate sales.[sc:kit02 ]
Sales to Current Assets Formula
Explanation of Sales to Current Assets
The Sales to Current Assets ratio measures how well a company is making use of its assets in generating sales. This ratio is most valid in industries where companies hold the majority of their own inventories in-house, as opposed to having their customers hold their inventory for them.
Importance of Sales to Current Assets
The Sales to Current Assets ratio is best measured over several periods and needs to be compared to industry averages, as the amount of Current Assets varies widely among companies and industries. A decreasing Sales to Current Assets ratio is generally a negative sign, indicating the company may have slowed production, decreasing the amount of Inventories and resultantly the Total Current Assets.