![]() ExampleĪt the beginning of a company, the assets were $100000 and $150000 at the end of the year. The asset turnover ratio is calculated on an annual basis. The company’s average total assets are the average of both long-term and short-term assets for the past two years recorded on its balance sheet. Net sales are the amount generated by a business after discounts, allowances for missing goods or damaged, and cost of returns. The total assets and revenue generated are found on the balance sheet and income statement, respectively.Īsset Turnover Ratio = Total Sales / Average Total Assets It is calculated by taking the net sales and dividing it by the company’s average total assets. A high asset turnover may be seen in companies with older assets compared to a company with the same revenue but is new. The age of the assets in two similar companies will affect their asset turnover ratio. If a company has a total asset turnover ratio 0f 0.7, 70 cents are generated for each dollar of assets invested. It computes the net sales as a percentage of assets to show how much each dollar of a company’s assets generates revenue. If the ratio is high, performance is good. ![]() The ratio can be used to determine a company’s performance. The asset turnover ratio is an essential financial ratio used to understand how effective a company is at using its assets to create revenue.
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