The final measure of asset efficiency is assets divided by sales. Here the focus is the investment in assets required to generate a dollar of sales. Because each sale represents a profit opportunity, this ratio reveals something about asset efficiency from a marketing perspective. The goal, obviously, is to get more sales from each dollar of assets employed, thus increasing the return on investment.

In addition to using and managing assets more efficiently, there is a specific financing dimension to asset efficiency: It is not always necessary to own an asset to use it, and it is possible to lease an asset without having it appear on the balance sheet. While leases that are effectively financing exercises have to be capitalized—that is, put on the books as both an asset in use and a liability to be paid—operating leases and rental arrangements permit use of assets without balancesheet impacts. This can have a positive effect on return on assets by reducing the asset base below what it would be if the asset were owned outright or capitalized on the books as a financing lease. The trade-off is that you may actually pay more for the use of something owned by someone else than you would if you owned it yourself. The lease-versus-buy decision needs to be carefully analyzed.

There is still another, high-level dimension to the asset-owning issue when it comes to efficiency of asset use. Rather than either owning or renting, you may be better off contracting out the entire function. Take the following example. A fresh-fish wholesaler on the Great Lakes is located in the far north and has always relied on its fleet of three trucks to deliver to major metropolitan areas. But all three trucks are now reaching an age and mileage level at which it is time to replace them. A local dealership has offered an operating-lease arrangement that will keep the new trucks off the wholesaler’s books and require no upfront cash outlay. The owners are naturally very interested. The extra cash freed up by such a lease will help them with the working capital they need to start a new export line of whitefish caviar.

Taken From : Cash Rules