An Introduction to Asset Performance

The asset performance of a business is its ability to use and manage its productive resources to bring about returns. With the present cash crunch and companies getting leaner, investors and owners are especially keen to make existing assets perform optimally. Let's see what essentially assets are and why a company needs to monitor, evaluate and optimize asset performance.

What Are Assets?

When an individual or a company owns any item of economic value that can be converted into cash, the item is an asset. Assets can be of two kinds: tangible and intangible. Tangible and intangible assets each have subdivisions. Tangible assets include current and fixed assets amongst others. Non-physical resources and rights that add value to a firm are intangible assets. Overall, you can say that assets are the sum of common and preferred stocks, retained earnings and liabilities.

Value of Asset Performance to the Investors

A strong asset performance makes the company a good investment choice. When a company has improved its asset performance, the company earns a higher return for the same assets or utilizes fewer assets. When the company makes a higher return on assets, the investors get a better return for their investments. When customers get better-quality products, sales are often higher. When this is the case, the company’s share price in the market is higher, and it is a sought-after investment choice.

Need for Good Asset Performance

Controlling the costs and maintaining the optimal product or service quality become possible only with an improved and top-quality asset performance. Customers demand top-notch services or products, and shareholders demand high-level performance from a company and maximum return for their investments. These both can be achieved only with a great asset performance.

Assessing Asset Performance

The cash conversion cycles, fixed asset turnover ratios and the return of assets ratio are some of the criteria to measure the asset performance of a company. Analysts use these to gauge improvement in business efficiency. Analyses by various financial analysts help companies (to a great extent) to maintain or even improve the quality of their products or services. Financial analyses also help companies control costs because they help the companies improve asset performance.

How to Improve Asset Performance?

  • Use more efficient management techniques to reduce operational costs.
  • Demonstrate how a better operational performance benefits the business performance.
  • By becoming familiar with all the available assets--both tangible and intangible--and finding more innovative ways of utilizing them, companies can make better-informed decisions and manage market challenges more effectively.
  • New technical tools, such as condition-based maintenance (CBM), statistical process control (SPC) and reliability-centered maintenance can be tried.
  • Create a better team that will straddle both operation and business performance optimally.

Improved asset performance is essential to increase revenues, to reduce operation costs, for excellent customer service and for a high return for the investors.

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