Sponem suggests asking your accountant or banker for comparisons. How do you find out what a competitor’s asset turnover ratio is? Having access to other businesses’ financial statements would allow you to calculate their ratios yourself, but that’s going to be tricky unless your competitors are public companies. This would involve finding out what a typical asset turnover ratio is for a business of your size in your industry.īenchmarking your business’s asset turnover ratio That’s perfectly normal, says Sponem.īecause of variables like high-cost machinery, you need to figure out how your business is performing relative to competitors. For example, a construction business requires far more significant assets-consider all the expensive machinery needed-than a service-oriented business, like an accounting firm.Īs a result, sales per asset, meaning the dollar figure of the sales divided by the dollar figure spent on the asset, will be lower in the construction business. However, acceptable ratios will vary across industries, and correspond to your business’s operating environment and size. A lower ratio can indicate inefficiency, which could be due to a poor use of assets, ineffective collection methods, weak inventory management or other issues. What is a good asset turnover ratio?Īs a general rule, a higher ratio is favourable because it indicates that the company is using its assets efficiently. In other words, every $1 in assets generated 50 cents in net sales revenue. Using the above formula, we can calculate the asset turnover ratio as follows: (Your net sales are your gross sales less any returns, discounts or allowances, while your total assets are equal to your equity minus any liabilities.)įor example, suppose your business made $750,000 in net sales last year and had total assets worth $1,500,000. Growth & Transition Capital financing solutions Kauffman Fellows Program Partial Scholarship ![]() Venture Capital Catalyst Initiative (VCCI) Return from Total Asset Turnover Ratio, Formula and How to Calculate It to AccountingCorner.Industrial, Clean and Energy Technology (ICE) Venture Fund This ratio as a stand alone is not indicative and it should be either compared across various periods of time in the same business or with the competitors operating in the same industry area.įor comprehensive knowledge on financial statements check Balance Sheet Example and Income Statement Example to find data for ratio calculation. Of course, the higher the ratio, the better is the business using assets to generate revenue. This is an indicator of efficiency showing, how efficient is the business is using its assets. This ratio indicates what is the level of revenue the business generates using the assets on hand. Therefore the formula will look like this:Īsset Turnover = Sales or Revenues / Average Value of Assets Also this is logical comparison, since average value of assets is then compared to sales, which represent level of sales through all the period in question. Such calculation would better represent value of assets in the business, since it can fluctuate through the period depending on seasonality or other factors. value at the beginning and end of accounting period divided by 2. While calculating the value of total assets it is recommended to take average value, i.e. The following formula is used to calculate this ratio:Īsset Turnover = Sales or Revenues / Total Assets ![]() Total Assets Turnover Ratio compares revenues generated by the business with the value of total assets.
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