This asset turnover calculator estimates the ratio of the sales of a company to its assets, which is an efficiency figure that indicates how successfully the business is using its assets to generate revenue within the fiscal year. There is more information on how to determine this indicator below the form.
How does this asset turnover calculator work?
This accounting tool helps in assessing the efficiency of a company in terms of using its assets to generate business revenue.
In accountancy these are the most often used asset turnover ratios:
Fixed asset turnover ratio (FATR);
Total asset turnover ratio (TATR);
Working capital turnover ratio (WCTR).
The algorithm behind this asset turnover calculator is based on their standard formulas as explained below. As it can be observed from their equations, the numerator of the ratio is the same net sales figure (referring to both cash and sales on credit) while the denominator varies from one formula to another:
FATR = Net sales value / Average fixed assets
TATR = Net sale value / Average total assets
WCTR = Net sales value / Average net working capital
The interpretation of the asset turnover ratio
Usually the higher the turnover ratio is the better is as this is a signal that the business generates a significant sales volume with its assets it has a higher turnover ratio, thus it is considered an efficient company.
Even though a lower turnover ratio indicates that the entity is not using its resources in an optimal way, please note that this indicator varies from one domain to another, thus for a proper comparison please consider companies within same area of activity. For instance retail companies tend to have a higher asset turnover ratio than the industrial ones as the asset value a retail business uses is significant lower than in case of a factory for example, while its sales volume may be significant.
Example of a calculation
Let’s assume a company has the following situation:
- Net sales value = $4,000,000
- Average total asset = $2,500,000
- Average fixed asset = $1,500,000
- Average net working capital = $850,000 . Will result the following figures:
■ Total Asset Turnover Ratio: 1.60
■ Fixed Asset Turnover Ratio: 2.67
■ Working Capital Turnover Ratio: 4.7117 Feb, 2015 | 0 comments