Asked by Austin Parker on Jun 14, 2024
Verified
Explain how to calculate total asset turnover.Describe what it reveals about a company's financial condition,whether a higher or lower ratio is desirable,and how it is best applied for comparative purposes.
Total Asset Turnover
A financial metric that measures the efficiency of a company's use of its assets in generating sales revenue, calculated by dividing sales revenue by total assets.
Financial Condition
The status of a company's assets, liabilities, and equity positions at a specific point in time, as depicted in its financial statements.
Comparative Purposes
For comparative purposes entails analyzing financial statements or other data side by side to discern trends, effects of strategies, or performance over time.
- Analyze and interpret the total asset turnover ratio and its importance in assessing a company's efficiency.
Verified Answer
KD
Kelly DavisJun 15, 2024
Final Answer :
Total asset turnover is calculated by dividing net sales by average total assets.The result is interpreted as the amount of net sales generated by each dollar of assets.Thus,the ratio reflects a company's ability to efficiently use its assets to generate sales.A high number is desirable; however,it must be interpreted in comparison with prior years as well as with competitors and industry standards.
Learning Objectives
- Analyze and interpret the total asset turnover ratio and its importance in assessing a company's efficiency.