Comparing a retail company’s asset turnover ratio to that of a telecom firm may not be of use, since this ratio could vary across business segments. The asset turnover ratio is very important for investors in comparing companies within the same sector or group.
Example of asset turnover ratio calculation The final value must be divided by two to get average total assets. Average total assets – These can be calculated by adding together:.It is important to take off sales refunds from total sales to get the true measure of a firm’s assets’ capability to generate sales. Net sales – This can be found in a company’s income statement.The asset turnover ratio is calculated as – This shows the number of sales generated from every rupee of company assets. The total asset turnover ratio estimates net sales as a percentage of total assets. This ratio compares a company’s net sales to average total assets, thus enabling investors and creditors to determine how efficiently a company is using its assets to generate sales.
It measures a company’s ability to generate sales using its assets. The asset turnover ratio is one of the efficiency ratios used while analysing a company.
How to calculate Asset Turnover ratio and its interpretation? It is generally calculated annually for a specific financial year. Asset turnover ratio can differ across companies. The higher an asset turnover ratio, the better a company’s performance is considered to be.