Metrics (Asset Utilization) and New 2007 Accounting Standards (#30)
/In this episode, we review upcoming new accounting standards, as well as some of the better metrics relating to asset utilization. Key points discussed concerning new accounting standards are:
Conceptual Framework Project; could be at the top of the GAAP Hierarchy
Business Combinations; acquisition method
Fair Value Option
Earnings per Share; to converge with IFRS standards
Income Taxes; to converge with IFRS standards
Nonprofit Accounting
Post-Retirement Benefits; implementation guidance
Subsequent Events; cleanup issues
Emerging Issues Task Force; changes to its approval process
Securities and Exchange Commission; Staff Accounting Bulletin 108
Key points relating to the metrics for asset utilization are:
Sales per person; can be adjusted by using outsourcing or part-time employees
Need to look at asset utilization on an individual basis to see impact on bottleneck operations
Repairs to fixed assets ratio; fixed assets are stated at gross, and intangible assets are excluded
Accumulated depreciation to fixed assets ratio; increasing trend shows preponderance of old assets; might also still have old assets on the books that have already been dispositioned
Breakeven point; useful for understanding maximum possible profitability, as well as the margin of safety; can be used to view the impact of new fixed asset purchases on the breakeven point