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- NEXT DEFINITIONBailoutDefinition: Bailout is a general term for extending financial support to a company or a country facing a potential bankruptcy threat. It can take the form of loans, cash, bonds, or stock purchases. A bailout may or may not require reimbursement and is often accompanied by greater government oversee and regulations. The reason for bailout is to support an industry that may be affecting millions of people internationally and could be on the verge of bankruptcy due to prolonged financial crises. Description: Bailout policies come in various forms, the most common being direct loans or guarantees of third-party (private) loans to the rescued entity. These direct loans are often on terms favouring the entity being rescued. Sometimes even direct subsidies are provided to the parties concerned. Stock purchases are also not uncommon. The government or the financing body places strict requirements such as restructuring of organisation, no dividend payment to shareholders, change of management and in some cases a cap on salaries of executives till a stipulated time period or the repayment of dues. This may also be followed by a temporary relaxation of rules that may impact the accounts of the rescued entity. Bailouts have several advantages. First, they ensure continued survival of the entity being rescued under difficult economic circumstances. Secondly, a complete collapse of the financial system can be avoided, when industries too big to fail start to crumble. The government in these cases steps in to avoid the insolvency of institutions that are needed for the smooth functioning of the overall markets. Bailouts also have their disadvantages. Anticipated bailouts encourage a moral hazard by allowing not only promoters but also other stakeholders (customers, lenders, suppliers) to take higher-than-recommended risks in financial transactions. This happens because they start counting on a bailout when things go wrong.Read More
Definition of 'Asset Turnover Ratio'
Definition: Asset turnover ratio is the ratio between the value of a company’s sales or revenues and the value of its assets. It is an indicator of the efficiency with which a company is deploying its assets to produce the revenue. Thus, asset turnover ratio can be a determinant of a company’s performance. The higher the ratio, the better is the company’s performance. Asset turnover ratio can be different from company to company. Usually, it is calculated on an annual basis for a specific financial year.
Description: Asset turnover ratio can be calculated by considering the average of the assets held by a company at the beginning of the year and at the end of a financial year and keeping the total number of assets as the denominator. The ratio can be higher for companies in certain sectors than others. For example, the retail sector yields the highest asset turnover ratio. According to a survey the retail sector scored an asset turnover ratio of 2.05 in 2014. Retail companies generally have small asset bases, but high sales volumes. The asset turnover ratio is a key constituent of DuPont analysis, a method the DuPont Corporation began using at some point in the 1920s. DuPont analysis basically breaks down return on equity into three parts, asset turnover, profit margin and financial leverage. The asset turnover ratio can be calculated by dividing the net sales value by the average of total assets.
Asset turnover = Net sales value/average of total assets
Generally, a low asset turnover ratio suggests problems with surplus production capacity, poor inventory management and bad tax collection methods. Low-margin industries always tend to have a higher asset turnover ratio.
Description: Asset turnover ratio can be calculated by considering the average of the assets held by a company at the beginning of the year and at the end of a financial year and keeping the total number of assets as the denominator. The ratio can be higher for companies in certain sectors than others. For example, the retail sector yields the highest asset turnover ratio. According to a survey the retail sector scored an asset turnover ratio of 2.05 in 2014. Retail companies generally have small asset bases, but high sales volumes. The asset turnover ratio is a key constituent of DuPont analysis, a method the DuPont Corporation began using at some point in the 1920s. DuPont analysis basically breaks down return on equity into three parts, asset turnover, profit margin and financial leverage. The asset turnover ratio can be calculated by dividing the net sales value by the average of total assets.
Asset turnover = Net sales value/average of total assets
Generally, a low asset turnover ratio suggests problems with surplus production capacity, poor inventory management and bad tax collection methods. Low-margin industries always tend to have a higher asset turnover ratio.
- NEXT DEFINITIONBailoutDefinition: Bailout is a general term for extending financial support to a company or a country facing a potential bankruptcy threat. It can take the form of loans, cash, bonds, or stock purchases. A bailout may or may not require reimbursement and is often accompanied by greater government oversee and regulations. The reason for bailout is to support an industry that may be affecting millions of people internationally and could be on the verge of bankruptcy due to prolonged financial crises. Description: Bailout policies come in various forms, the most common being direct loans or guarantees of third-party (private) loans to the rescued entity. These direct loans are often on terms favouring the entity being rescued. Sometimes even direct subsidies are provided to the parties concerned. Stock purchases are also not uncommon. The government or the financing body places strict requirements such as restructuring of organisation, no dividend payment to shareholders, change of management and in some cases a cap on salaries of executives till a stipulated time period or the repayment of dues. This may also be followed by a temporary relaxation of rules that may impact the accounts of the rescued entity. Bailouts have several advantages. First, they ensure continued survival of the entity being rescued under difficult economic circumstances. Secondly, a complete collapse of the financial system can be avoided, when industries too big to fail start to crumble. The government in these cases steps in to avoid the insolvency of institutions that are needed for the smooth functioning of the overall markets. Bailouts also have their disadvantages. Anticipated bailouts encourage a moral hazard by allowing not only promoters but also other stakeholders (customers, lenders, suppliers) to take higher-than-recommended risks in financial transactions. This happens because they start counting on a bailout when things go wrong.Read More
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