ASSETS TURNOVER RATIO HOW TO

The total assets figure becomes the denominator for the asset turnover ratio. After adding the beginning value to the ending value, divide the sum by two to reveal the average asset value, or total assets, for the year.Look for the value of the company's assets at the end of the year.Look to its balance sheet for the value of its assets at the beginning of the year.To determine the average value of the company's assets for the year: The figure should be net of discounts, allowances, and returns. To determine the value of net sales for the year, look to the company's income statement for total sales. The formula's components (net sales and total assets) can be found in a company's financial statements.

ASSETS TURNOVER RATIO HOW TO

Its total assets: the total of its equity and liabilities at the beginning of the year plus the total at the end of the year divided by two.Īsset Turnover Ratio = Net Sales / Total Assets How To Calculate Asset Turnover Ratio.

A company's net sales: its gross sales after accounting for returns, discounts, and allowances.

The formula for calculating asset turnover ratio consists of two factors: Asset Turnover Ratio Formula & Calculation Key Takeaway: Companies with higher asset turnover ratios tend to perform better because they use less equity and debt to produce revenue. Companies with a lower asset turnover ratio may be relying too heavily on equity and debt to generate revenue, which can hurt their performance and long-term growth potential. For investors, that can translate into a greater return on shareholder equity. They tend to perform better because they use less equity and debt to produce revenue, resulting in more revenue generated per dollar of assets. This ratio can be a useful point of comparison for investors to evaluate the operations of different companies and their potential as an investment.Ĭompanies that don't rely heavily on their assets to generate revenue have a higher asset turnover ratio than companies that do. Generally, companies with a high asset turnover ratio are more efficient at generating revenue through their assets, while those with a low ratio are not. The asset turnover ratio is a financial measure of how efficiently a company utilizes its assets to produce sales revenues. Working capital consists of a company's cash flow as well as its assets. The asset turnover ratio measures the efficiency with which a company uses its assets to generate sales by comparing the value of its sales revenue relative to the average value of its assets.Ĭompanies rely on their working capital to generate sales revenue. The success of any company is largely based on its ability to effectively use its assets to generate sales. SunnySideUp/iStock via Getty Images What Is the Asset Turnover Ratio?

Assets turnover ratio