However, the high turnover group sold an additional 1,752 pounds of milk per cow or, when multiplied by herd size, an additional 2.67 million pounds of milk. While a seemingly subtle difference in production, the high turnover group generated substantially more milk revenues from a similar herd size. Furthermore, the high turnover group produced this additional milk more efficiently. The next observation to make is the difference in the capital structure between groups. This can be understood by examining asset level and composition.
Total assets divided by the number of cows is a simple measure of asset level.
Asset composition can be measured by the portion of asset invested in various categories. Not only did the high turnover group have less invested on a per cow basis, a greater portion of the assets were invested in livestock. The level of assets per cow is a useful measure because cows generate the majority of revenues on a dairy. Controlling this factor is important because of the implications asset efficiency has on debt service ability, investment costs such as depreciation, and the ability of the business to meet its other cash flow requirements. The level of the asset turnover ratio also directly affects the profitability of the business, as evident from these observations.