Here is how you can calculate the separate elements of this formula. Once you have these figures, just plug them into the formula to calculate your total asset turnover. You must calculate values for net sales and total assets separately if you intend to calculate total asset turnover using the above formula. However, each component of this formula represents another formula in and of itself. Another way to think of it is to assume every $1 in assets generates 10 cents in net sales revenue. This means that the company’s assets generate 10% of net sales per their value. Total Asset Turnover = Net Sales / Total Assetsįor example, if a company has $1 million in total assets and makes $100,000 in net sales, the formula would be the following: Total asset turnover is represented as a relatively simple formula: Related: 8 Simple Ways Small Businesses Can Increase Their Sales More specifically, you can use your total asset turnover ratio to determine the dollar value you’re receiving in sales compared to the dollar value of your assets. It also indicates that your assets are still a value to your company and do not need to be discarded or replaced.
In other words, it indicates your company is productive, efficient and generating little waste. Most companies will want to see a high total asset turnover ratio because it means the company is effectively using its assets. It’s a tool you can use to measure how efficiently your company is using its assets to generate real revenue. The total asset turnover ratio of your business is a type of efficiency ratio that measures the value of your sales revenue in relation to the value of your company’s assets. You should be aware of the total asset turnover ratio when calculating income at the end of the year because it has significant implications for your business.
Ratios are one way to determine the efficiency of certain departments or assets - or even of your entire business. There are many tools at your disposal for analyzing your business’s sales performance.
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