K + S Group Efficiency

Efficiency

According to the Study Guide (Turner 2016), efficiency is ‘how well net operating assets (NOA) in a business are being used to generate sales or turnover (turnover is another word for sales). It is measured as the relationship between assets and turnover, called asset turnover (ATO)’ (Chapter 4, p.23).

K + S Group Asset Turnover Ratio

		2014	2013	2012	2011
Total Asset Turnover Ratio	Sales/total assets	0.80	0.88	1.09	1.19

KCQ: Asset Turnover (ATO) is defined as: Sales (or Revenues)/NOA

Where NOA = net operating assets

The Study Guide (Turner 2016) states that Asset Turnover (ATO) is the amount of sales generated by each dollar of net operating assets (NOA) in the business. It is the ability of NOA in the business to generate sales.

K + S Group have reported a consistent slow in ATO and this is represented in the 80 cents per euro for 2014. The Group note that Potash resources in Germany are limited and as such have invested in the Legacy Project, a new Potash Plant based in Canada that will not be operational until the summer of 2016. As a result, the Group are currently reporting additional assets that aren’t currently generating sales.

According to the Study Guide, an average ATO in the US is about 2.0 times; but can vary widely between firms with many firms having an ATO between about 1.0 and 3.0 times (Chapter 4, p.23). This is reflected in the 2011 and 2012 figures. However, once again the large capital investment in the Legacy Project is no doubt skewing the ratio for 2013 and 2014. This project commenced construction in June 2012 and is due for completion in summer 2016.

K + S Group Return on Net Operating Assets

According to the Study Guide, Return on Net Operating Assets (RNOA) is a ratio that expresses the relationship between two numbers or quantities in a firm’s financial statements. It is the relationship between operating income (OI) and net operating assets (NOA).(Chapter 4, p.20). 

		2014	2013	2012	2011
Return on Net Operating Assets (RNOA)	Operating income after tax (OI)/net operating assets (NOA)	15.02%	7.20%	18.31%	19.96%

KCQ: RNOA is defined as: RNOA = OI/NOA

K + S Group RNOA reflects the same trend as ATO with a definite slump in 2013. However, RNOA reports a reasonable recovery in 2014, suggesting that market recovery since ‘Black Friday’ and efforts to improve efficiency as part of the ‘Fit for the future’ program may be having a positive impact.