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ANALYSIS THE FIXED ASSETS TURNOVER AT LG ELECTRONICS

Fixed assets are the asset which cannot be liquidates into cash within one year.
The large amount of the company is invested in these assets. Every year the company
investment a additional fund in these assets directly or indirectly the survival and
other objectives of the company purely depends on operating performance of
management in effective utilization of their assets.

Firm has evaluate the performance of fixed assets with proportion of capital
employee on net assets turnover and other parameters which is helpful for evaluating
the performance of fixed assets.

The project is covered of fixed Assets of LG ELECTRONICS. drawn form


annual report of the company. The fixed assets considered in the project is which cam
not be converted into cash with one year. Ratio analysis is used for evaluating fixed
assets performance of LG ELECTRONICS.

The subject matter is limited to fixed assets it analysis and its performance but
not any other areas of accounting, corporate marketing and financial matters.

What is the 'Fixed-Asset Turnover Ratio'

The fixed-asset turnover ratio is, in general, used by analysts to measure


operating performance. It is a ratio of net sales to fixed assets. This ratio specifically
measures how able a company is to generate net sales from fixed-asset investments,
namely property, plant and equipment (PP&E), net of depreciation. In a general sense,
a higher fixed-asset turnover ratio indicates that a company has more effectively
utilized investment in fixed assets to generate revenue.

The fixed-asset turnover ratio is calculated as:

Fixed assets turnover= Net sales


Net Property, Plan and Equipment
BREAKING DOWN 'FIXED-ASSET TURNOVER RATIO'

The fixed-asset turnover ratio is commonly used as a metric in manufacturing


industries that make substantial purchases for PP&E in order to drive up output. When
a company makes such significant purchases, wise investors closely monitor this ratio
in subsequent years, to observe the effectiveness of such an investment in fixed assets.

In general, investments in fixed assets are representative of the sole, largest


component of the company’s total assets. The ratio, calculated on an annual basis, is
constructed in a way that is purposeful in reflecting how efficiently a company,
primarily the company’s management team, has used these substantial assets to
generate revenue for the firm.

Indications of the Fixed-Asset Turnover Ratio

While a higher ratio is indicative of greater efficiency in managing fixed-asset


investments, there is not an exact number or range that dictates whether a company
has been efficient at generating revenue from such investments. For this reason, it is
important for analysts and investors to compare a company’s most recent ratio to both
the historic ratios of the company and to ratio values from peer companies and/or
industry averages.

Though the fixed-asset turnover ratio is of significant importance in certain


industries, an investor or analyst must determine whether the specific company is the
right type for the ratio being used, before attaching any weight to it. Fixed assets vary
drastically from one company to the next. As an example, consider the difference
between an Internet company and a manufacturing company has a significantly
smaller fixed-asset base than a manufacturing giant such as Caterpillar. Variations on
the Ratio
Some asset-turnover ratios utilize total assets in the equation instead of fixed
assets. However, the latter acts as a representative of a multiplicity of a firm’s
management’s decisions on capital expenditures, because it is such a significant
element in the firm’s balance sheet. A fixed-asset investment is a capital investment,
but more importantly, the results of the capital investment are a greater indicator of
performance, more so than that evidenced by total asset turnover.

MANAGEMENT OF FIXED ASSETS

The selection of various fixed asset required creating the desired Production facilities
and the decision regards the extermination of the level of Fixed assets is primarily the
task that at the production technical people. The decision relating to fixed assets
involves huge funds a long period of time and are generally irreversible nature
affecting the long term profitability of a concern, an unsound invest decision may
prove to b total to the very existence of the organization. Thus, the management of
fixed asset is of vital importance to any organization.

The process of fixed asset management involves:

(i) Selection of most worthy projects or alternative of fixed assets,

(ii) Arranging the requisite funds / capital for the same

The first importance consideration to be acquire only that much amount of


fixed assets which will be just sufficient to ensure and efficient running of the
business. In some cases it may be economical to by certain asset in a lot size.
Another important consideration to be kept in mind is possible increase in demand
of the firm’s product necessarily expansion of its activities. Hence a firm should
have that much amount of fixed assets , which could adjust to increase
demand.
The third of fixed assets management is that a firm must ensure buffer stocks of
certain essential equipment / services to ensure uninterrupted production in this events
of emergencies. Sometime, there may be a breakdown in some equipment or services
affecting the entire production. It is always better to have some alternative
arrangements to deal with such situations. But at the same time the cost of carrying
such buffer stock should also be evaluated. Efforts should also be made to minimize
the level of buffer stock of fixed assets be encouraging their maximum utilization
during learn period, transferring a part of peak period and living additional capacity.

The process of Fixed Assets Management involves:

1. Selection of most worthy projects from the different alternatives of fixed assets.
2. Arranging the requisite funds/capital for the same.
The first important consideration is to acquire only that amount of fixed assets,
which will be just sufficient to ensure smooth and efficient running of the business. In
some cases it may be economical to buy certain assets in a lot size. Another important
consideration to be kept in mind is possible increase in the demand of the firm’s
product needs the expansion of activities. Hence a firm should have that amount of
fixed assets, which could adjust to increase demand.

Another aspect of fixed assets management is that a firm must ensure buffer
stocks of certain essential equipments to ensure uninterrupted production in the events
of emergencies. Sometimes, there may some breakdown in some equipments or
services affecting the entire production. It is always better to have some alternative
arrangements to deal with such situations but at the same time the cost of carrying
such buffer stock should also be evaluated. Efforts should also be made to minimize
the level of buffer stock of fixed assets so that there will be maximum utilization
during that period.

Fixed assets management is an accounting process that seeks to track Fixed


assets for the purposes of financial accounting, preventive Maintenance, and theft
deterrence. Many organizations face a significant challenge to track the location,
quantity, condition, maintenance and depreciation status of their fixed assets.
A popular approach to tracking fixed assets utilizes serial numbered Asset
Tags, often with bar codes for easy and accurate reading. Periodically, the owner of
the assets can take inventory with a mobile barcode reader and then produce a
report .Off-the-shelf software packages for fixed asset management are marketed to
businesses small and large. Some Enterprise Resource Planning systems are available
with fixed assets modules.

Investment management : It is the professional management of various securities


(shares, bonds etc) and other assets (e.g. real estate), to meet specified investment
goals for the benefit of the investors. Investors may be institutions (insurance
companies, pension funds, corporations etc.) or private investors (both directly via
investment contracts and more commonly via collective investment schemes eg.
mutual funds).

The term asset management is often used to refer to the investment management of
collective investments, whilst the more generic fund management may refer to all
forms of institutional investment as well as investment management for private
investors. Investment managers who specialize in advisory or discretionary
management on behalf of (normally wealthy) private investors may often refer to their
services as wealth management or portfolio management often within the context of
so-called "private banking".

The provision of 'investment management services' includes elements of financial


analysis, asset selection, stock selection, plan implementation and ongoing monitoring
of investments.

Investment management is a large and important global industry in its own right
responsible for caretaking of trillions of dollars, euros, pounds and yen. Coming under
the remit of financial services many of the world's largest companies are at least in
part investment managers and employ millions of staff and create billions in revenue.

Fund manager : It refers to both a firm that provides investment management services
and an individual(s) who directs 'fund management' decisions
Fixed asset : It also known as property, plant, and equipment (PP&E), is a term used
in accountancy for assets and property which cannot easily be converted into cash.
This can be compared with current assets such as cash or bank accounts, which are
described as liquid assets. In most cases, only tangible assets are referred to as fixed.

Fixed assets normally include items such as land and buildings, motor vehicles,
furniture, office equipment, computers, fixtures and fittings, and plant and machinery.
These often receive favorable tax treatment (depreciation allowance) over short-term
assets because they depreciate over time.

Assets Characteristics:

Assets have three essential characteristics:

 They embody a future benefit that involves a capacity, singly or in combination


with other assets, in the case of profit oriented enterprises, to contribute directly
or indirectly to future net cash flows, and, in the case of not-for-profit
organizations, to provide services;

 The entity can control access to the benefit; and,

 The transaction or event giving rise to the entity's right to, or control of, the
benefit has already occurred.