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This financial metric explains how India’s economy will take some time to get back on track

  • The Indian economy showed several signs of recovery and analysts are optimistic about the recovery of the investment cycle.
  • However, a metric shows that several key sectors – including energy, real estate, consumer packaged goods and agriculture – have yet to improve their performance compared to fiscal 2019, the year before Covid.
  • On a positive note, several other important sectors such as telecommunications, metals, textiles, among others, have already improved their performance.

India’s economy is showing signs of recovery after the Covid pandemic has taken its toll over the past two years. However, it still has a long way to go before it gets back on track – and this simple but essential financial measure explains where we are today.

The Indian government has put in place a massive ₹111 lakh crore plan to rejuvenate capital spending and has also encouraged the private sector to throw its weight behind it. But the Covid pandemic in 2020 played spoilsport and set back capital spending by a few years. Now analysts say they are finally witnessing the long-awaited revival of the investment cycle.

But capital spending alone doesn’t tell us if we’re headed in the right direction, which is where other metrics like capacity utilization and asset turnover rates come into play.

Although capacity utilization is a measure provided by the RBIasset turnover ratios can be calculated independently based on companies’ financial statements. Asset turnover rate can also be considered as an indicator of capacity utilization, since it measures the income that a company generates with its fixed assets.

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The Indian economy has shown several signs of recovery and analysts are optimistic about the recovery of the investment cycle. However, a metric shows that several key sectors – including energy, real estate, consumer packaged goods and agriculture – have yet to improve their performance compared to fiscal 2019, the year before Covid. On a positive note, several other important sectors such as telecommunications, metals, textiles, among others, have already improved their performance.

What is the asset turnover rate?




As the name suggests, the asset turnover ratio measures the value of a company’s sales or turnover relative to the assets it has. In other words, it shows how efficient a business is in using its assets to generate revenue.

A high asset turnover rate indicates that the company is efficient, while a low rate indicates that it is inefficient.

Why is asset turnover rate important?

The asset turnover rate helps in comparing companies with different levels of assets and revenues, since the comparison is made in terms of efficiency and not raw numbers.

It should be noted that different sectors have different levels of desirable asset turnover ratios. For example, the FMCG sector has a relatively high asset turnover ratio, while a real estate company has a lower ratio.

As such, this ratio is useful for comparing the performance of companies in the same industry.

Which sectors have the best asset turnover ratios in India?

According to a report by Bank of Baroda Research, only 15 out of 40 sectors saw huge improvement in their asset turnover ratios in FY22 compared to FY19. This shows that the Indian economy has still a long way to go before we can say she’s back on track.

Surprisingly, the distress in the telecommunications sector seems to have eased slightly, with its performance now better than that of FY19.

This financial metric explains how India's economy will take some time to get back on track
Sectors with the best asset turnover rates in FY22Business Insider India / Thrive


The commercial sector also saw a drastic improvement (not included in the chart for better representation of other sectors) – its asset turnover rate fell from 18.25 in FY19 to 22.96 in FY19. ‘EX22.

Which sectors need to improve their asset turnover rates?

On the other hand, most key sectors like power, energy, real estate and even consumer staples saw relatively less improvement in their asset turnover ratios.

The diamond and jewelry sector needs to improve the most – its asset turnover rate was 9.16 in FY22, down from 13.54 in FY19.

This financial metric explains how India's economy will take some time to get back on track
Sectors that need to improve their asset turnover ratesBusiness Insider India / Thrive

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