We have prepared this total asset turnover calculator for you to calculate the total asset turnover ratio. The total asset turnover ratio tells you how much revenue a company can generate given its asset base. This ratio indicates a company's efficiency at generating sales.

The following article will help you understand what total asset turnover is and how to calculate it using the total asset turnover ratio formula. We will also show you some real-life examples to better help you to understand the concept.

What is the total asset turnover ratio? The meaning of the total asset turnover formula

The total asset turnover is defined as the amount of revenue a company can generate per unit asset. Mathematically, it can be understood as revenue over the average total assets. It is widely used to assess the operational efficiency of a company.

A high total asset turnover means that the company is able to generate more revenue per unit asset. On the other hand, a low total asset turnover suggests that the company is unable to generate satisfactory results with the asset it has in hand. Being able to assess a company's efficiency is one of the main steps when analyzing investment opportunities. Hence, it is vital for investors to understand the calculation using the total asset turnover formula.

How to calculate total asset turnover? Applying the total asset turnover ratio formula

To understand the total asset turnover ratio formula, let's take a look at Company Alpha, a company with the following information:

  • Name: Company Alpha
  • Revenue: $10,000,000
  • Beginning assets: $8,000,000
  • Ending assets: $9,000,000

The procedure involves 3 steps which are included in our asset turnover ratio calculator:

  1. Determine the revenue

You can find the revenue of a company in its income statement, where it is usually in the first line. For this example, Company Alpha's revenue is $10,000,000.

  1. Calculate the average assets

The next step is to calculate the average assets of the company. We can calculate this using the following formula:

average assets = (beginning assets + ending assets) / 2

The average assets for Company Alpha is ($8,000,000 + $9,000,000) / 2 = $8,500,000.

  1. Calculate the total asset turnover

Now we can calculate the total asset turnover. The total asset turnover formula is shown below:

total asset turnover = revenue / average assets

Hence, the total asset turnover for Company Alpha is $10,000,000 / $8,500,000 = 1.18x.

Still, you don't need to know how to find total asset turnover in detail if you use our asset turnover ratio calculator!

Interpreting results from the total asset turnover calculator

Now, let's talk about how you can interpret this powerful metric:

  • When interpreting the total asset turnover, it is crucial that we compare it against its peers. This is because different industries have different ways of working. For some companies that are naturally high asset-based, such as the energy industry, their total asset turnover is expected to be lower than other companies, such as consumer products companies.

  • Besides, some companies may make big asset purchases every now and then. This will cause their asset base to fluctuates. Hence, to assess total asset turnover in the proper context, we must use the average assets of the company in the calculation.

FAQ

How can a company improve its total asset turnover?

The best approach for a company to improve its total asset turnover is to improve its efficiency in generating revenue. For instance, the company can develop a better inventory management system.

Can total asset turnover be negative?

No, the total asset turnover cannot be negative.

Since the total asset turnover consists of average assets and revenue, both of which cannot be negative, it is impossible for the total asset turnover to be negative.

What is a good total asset turnover ratio?

The dynamics of total asset turnover are different for various industries. For example, retail companies have high sales and low assets, hence will have a high total asset turnover. On the other hand, Telecommunications, Media & Technology (TMT) may have a low total asset turnover due to their high asset base. Thus, it is important to compare the total asset turnover against a company's peers.

Is it better to have a high or low total asset turnover?

Generally, a high total asset turnover is better as it means the company can generate more revenue per asset base. A low total asset turnover means that the company is less efficient in using its asset to generate revenue.

Wei Bin Loo
Average asset
Beginning asset
$
Ending asset
$
Average asset
$
Total asset turnover
Revenue
$
Total asset turnover
x
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