This is just a basic average based on a two-year balance sheet. The returns and refunds should be withdrawn out of the total sales, in order to accurately measure a firm’s asset capability of generating sales.įundamentally, in order to calculate the average total assets, what you have to do is simply add the beginning and ending total asset balances together and divide the result by two. Essentially, the net sales are primarily utilized for calculating the ratio returns and refunds. You should find the net sales on the company’s income statement. So, what is the formula of this ratio? Well, according to the formula, you have to divide the net sales by the average total assets in order to get the asset turnover ratio. Understanding the Formula of the Asset Turnover Ratio 5 ratio, every dollar of the asset would facilitate no less than 50 cents of sales. To be more precise, the total asset turnover ratio calculates net sales as a given percentage of assets, in an attempt to outline how many sales are generated from each asset owned by the company. Expressly, this ratio displays how efficiently a company can utilize this in an attempt to generate sales. It accomplishes this by comparing the average total assets to the net sales of a company. The asset turnover ratio is a widely used efficiency ratio that analyzes a company’s capability of generating sales.
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