Total Asset Turnover Ratio, Formula and How to Calculate It

Total Assets Turnover Ratio compares revenues generated by the business with the value of total assets. The following formula is used to calculate this ratio:

Asset Turnover = Sales or Revenues / Total Assets

While calculating the value of total assets it is recommended to take average value, i.e. value at the beginning and end of accounting period divided by 2. Such calculation would better represent value of assets in the business, since it can fluctuate through the period depending on seasonality or other factors. Also this is logical comparison, since average value of assets is then compared to sales, which represents level of sales through all the period in questions.

Therefore the formula will look like this:

Asset Turnover = Sales or Revenues / Average Value of Assets

This ratio indicated what is the level of revenue the business generates using the assets on hand. This is an indicator of efficiency showing how efficient is the business is using its assets.

This ratio on stand alone is not indicative and it should be either compared across various periods of time in the same business or with the competitors operating in the same industry area. Of course the higher the ratio, the better is the business using assets to generate revenue.

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