We need to make sure that we have enough of the right kinds of materials and merchandise to satisfy our customers and achieve our goals, but we also want to make sure that we don't have scarce resources tied up in more inventory than we need or in inventory that isn't moving. The inventory turnover ratio is our efficiency measure, and it is computed by dividing the cost of goods sold by the average monthly inventory. The fixed assets section of the balance sheet includes such categories as vehicles, equipment, fixtures, buildings, and land. This is the capital that we have invested in productive capacity for our business. We need to make sure that this section truly reflects the value and scope of our fixed assets.
Many assets have productive and collateral value well past the point of full depreciation.
We want our bankers to know that we have such assets. In the case of land and buildings, we may need to add a footnote. Real estate typically appreciates over time, sometimes rapidly, but accounting conventions do not permit that appreciation to be shown on the balance sheet. If we have a current appraisal of our property which indicates that it is worth more today than we purchased it, then we need to attach that appraisal and add a footnote. Intangible assets such copyrights, trademarks, and trade secrets are another category which often requires a footnote.