Total asset turnover

Definition

Total asset turnover measures a company's ability to generate sales from its assets. It is calculated by dividing net sales by total assets.

5 Must Know Facts For Your Next Test

1. A higher total asset turnover ratio indicates better efficiency in using assets to generate revenue.
2. The formula for total asset turnover is Total Asset Turnover = Net Sales / Average Total Assets.
3. This ratio is important for assessing a company's operational efficiency.
4. It can vary greatly between industries; capital-intensive industries may have lower ratios compared to service-based industries.
5. Investors use this ratio to compare the performance of companies within the same industry.

Review Questions

• What does a higher total asset turnover ratio indicate?
• How do you calculate total asset turnover?
• Why might total asset turnover ratios differ between industries?

Related terms

Current Ratio:

Measures a company's ability to pay short-term obligations, calculated as Current Assets / Current Liabilities.

Return on Assets (ROA):

Indicates how profitable a company is relative to its total assets, calculated as Net Income / Average Total Assets.

Inventory Turnover:

Shows how often inventory is sold and replaced over a period, calculated as Cost of Goods Sold / Average Inventory.