For example, if your net sales are $20,000 and average total assets are $12,000, then your asset turnover ratio is 1.67. . Most businesses strive for an asset turnover ratio of >1 and use annual numbers for the equation. Definition of Asset Turnover Ratio. After you have calculated the total asset turnover, you can use it to make adjustments to how you use your assets and improve your earnings. Asset turnover (ATO), total asset turnover, or asset turns is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue or sales income to the company. Asset turnover can be defined as the amount of sales or revenues generated per dollar of assets. The ratio is only useful in the more capital-intensive industries, usually involving the production of goods. For instance, a ratio of .5 means that each dollar of assets generates 50 cents of sales. The ratio helps to measure the productivity of a company's assets. A lower ratio indicates poor efficiency, which may be due to poor utilization of fixed assets, poor collection methods, or poor inventory management. Ideally, a company with a high total asset turnover ratio can operate with fewer assets than a less efficient competitor, and so requires less debt and equity to operate. The total asset turnover ratios vary from industry to industry but anything close to one is considered low. To calculate a company's total asset turnover ratio, locate the company's annual net sales from its income statement, and average total assets from its balance sheet. asset [FINAN.] The independent variables net profit margin (NPM), current ratio (CUR), total asset turnover (TAT), fixed assets to net worth (PPE), return on investment (ROI), long-term debt to equity (LTD), and earnings before tax (EBT), have been operationalized by using the respective ratios for the period 2004 to 2014 from the Mergent Database. In general, the return on assets measure is better than the total asset turnover ratio, since it places the emphasis on profits, rather than sales. Then the asset turnover ratio is 10/7.5= 1.33. Adidas AG (ADDYY) had Asset Turnover of 1.14 for the most recently reported fiscal year, ending 2019-12-31. Suppose a company (say A) has sales of 10 crores in a financial year and its total fixed assets are Rs 7.5 crores. This is just a simple average based on a two-year balance sheet. You'll need a balance sheet from two different periods, such as two consecutive months, to calculate the average assets amount, and make sure you keep the time period consistent wit… Sometimes investors also want to see how companies use more specific assets like fixed assets and current assets. As total asset turnover ratio varies so much between companies in different sectors, there’s no universally defined figure for a “good” asset turnover ratio, and it doesn’t make sense to compare figures for businesses in different sectors. Average Total Assets: (Beginning Assets + Ending Assets) / 2. So this is going to be your formula now the asset turnover ratio formula example. Some industries use assets more efficiently than others. The higher the asset ratio, the more efficient the use of the company's assets. A company may have chosen to outsource its production facilities, in which case it has a much lower asset base than its competitors. The total asset turnover ratio is an accounting ratio used to measure how efficient a company is in the use of its assets. 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