Asset Turnover Ratio Homework Help, Tutoring
Asset Turnover Ratio Assignment Help, Asset Turnover Ratio Tutor Help:
Asset Turnover Ratio:
Asset turnover ratio explains the relationship between a company’s assets and its
turnover or sales revenue. It measures the company’s efficiency to use its assets
to generate revenue. It indicates the amount of sales generated from each dollar
of asset. It is computed as:
Sales
Average Assets
Average Assets
Sales used to compute the ratio are the net sales as reflected in the company’s
profit and loss account. Average assets are the total of assets at the beginning
and end of the period divided by 2.
Asset turnover ratio must not be looked at in isolation. It must be compared with
the industry standard to assess the company's efficiency in using its assets. A
higher number indicates better utilization of assets and better efficiency of the
company to employ its assets to generate sales revenue.
Example:
A company has the following turnover and asset numbers taken from its balance sheet.
| Year 2009 | Year 2008 | ||
| Turnover | $2,654,900 | $2,086,450 | |
| Current assets | $1,769,879 | $1,567,632 | |
| Fixed assets | $5,756,423 | $1,687,893 |
Asset turnover ratio:
$2,654,900
$3,390,914
0.78 Or $0.78 of revenue for every $1 in assets
Average assets:
(($1,769,879+$5,756,423) + ($1,567,632 + $1,687,893))/2
$3,390,914
$2,654,900
$3,390,914
0.78 Or $0.78 of revenue for every $1 in assets
Average assets:
(($1,769,879+$5,756,423) + ($1,567,632 + $1,687,893))/2
$3,390,914
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