As we can see from the video, John Osborne’s Gym and Squash centre has a great part of its investments in equipments, i.e., Fixed Assets. Therefore it will be profitable for the owner to monitor the Return on assets (ROA). ROA is a common profitability ratio which measures the amount of return generated by the assets relative to their cost. It gives an idea as to how efficiently the assets of the company are used to generate earnings. It is also referred to as Return on Investment (ROI). To calculate ROA the company's annual earnings is divided by its total assets. The ROA is displayed as a percentage. The higher the percentage, the better, because then the company is earning more on less investments.
Along with providing services to customers, the company also maintains stock of drinks that it sells to customers. Also, it has other inventories such as squash rackets, headbands etc. Therefore, in order to make sure that it is not overstocking or under stocking, the company needs to monitor the Stock Turnover Ratio (STO). The stock turnover ratio indicates a company’s efficiency in turning its inventory into sales. It shows the duration it takes for the company to sell its entire inventory. The ideal stock turnover ratio will vary from industry to industry. A higher number would mean that a longer duration is taken to sell out all of its inventory and vice-versa. Since the company deals in perishable products (drinks), a lower number will be preferred.
Palat, R.R. (1996). Understanding Financial Ratios in Business. New Delhi: Jaico Publishing House
Vandyck, C.K. (2006). Financial Ratio Analysis: A Handy Guidebook. Bloomington, Indiana: Trafford Publishing