![]() ![]() Low-margin industries always tend to have a higher asset turnover ratio. Generally, a low asset turnover ratio suggests problems with surplus production capacity, poor inventory management and bad tax collection methods. The asset turnover ratio can be calculated by dividing the net sales value by the average of total assets.Īsset turnover = Net sales value/average of total assets DuPont analysis basically breaks down return on equity into three parts, asset turnover, profit margin and financial leverage. The asset turnover ratio is a key constituent of DuPont analysis, a method the DuPont Corporation began using at some point in the 1920s. Retail companies generally have small asset bases, but high sales volumes. According to a survey the retail sector scored an asset turnover ratio of 2.05 in 2014. For example, the retail sector yields the highest asset turnover ratio. The ratio can be higher for companies in certain sectors than others. Usually, it is calculated on an annual basis for a specific financial year.ĭescription: Asset turnover ratio can be calculated by considering the average of the assets held by a company at the beginning of the year and at the end of a financial year and keeping the total number of assets as the denominator. The Asset Turnover Ratio is a metric that measures the efficiency at which a company utilizes its asset base to generate sales. Asset turnover ratio can be different from company to company. Asset Turnover Ratio Sales/Average Total Assets 27/25 1. Coca-Cola has sales of 27 billion, average total assets of 25 billion, and net income of 3.7 billion. The higher the ratio, the better is the company’s performance. How to Calculate Asset Turnover Ratio The formula for asset turnover ratio is: Revenue divided by average total assets Here is an example. Thus, asset turnover ratio can be a determinant of a company’s performance. It is an indicator of the efficiency with which a company is deploying its assets to produce the revenue. Definition: Asset turnover ratio is the ratio between the value of a company’s sales or revenues and the value of its assets. ![]()
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