Quality of assets (QOA) refers to the condition, value, and overall performance of a company’s assets. It is a measure of the underlying economic value and performance of a company’s assets, and it is used to assess the quality of a company’s assets and its ability to generate future cash flows.
One common formula is (PPE + Current Assets)/Total Assets expressed in %. It shows what % of total assets is being derived from PPE and Current Assets. If a company has a lot of intangibles or “Other Assets”, its Asset Quality will be poor
QOA analysis is typically conducted during a due diligence process, when considering an investment in a company or a potential acquisition. It is a comprehensive evaluation of a company’s assets, which includes the review of financial statements, operational reports, and other relevant financial data. It also helps to identify potential risks or opportunities that may impact the company’s future cash flows.
The QOA analysis typically includes:
-Evaluating the company’s property, plant, and equipment, including their value, condition, and useful life.
-Analyzing the company’s inventory, including its value, quality, and turnover.
-Reviewing the company’s accounts receivable, including creditworthiness of customers and aging of the accounts receivable.
-Analyzing the company’s intangible assets such as trademarks, patents, and copyrights.
