Total Asset Turnover

Posted in Finance, Accounting and Economics Terms, Total Reads: 1216
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Definition: Total Asset Turnover

It is revenue generated  by utilizing the asset . It indicates the margins on the assets engaged  in the process of production.  It is a measure of the efficiency of utilizing  the asset base .

Formula Used :

Total asset turnover  = Revenue /Assets

It only  infers about the sales and not on the profitability of the firm  hence it  is a different ratio than Return on an asset.

  • Asset turnover varies with the nature of industry. Example an Online cassette store would maintain a low fixed  asset  as compared to a convention brick and mortar store.

 

  • Nature of business activities – A  firm  might be selling its physical/current  assets to  maintain a higher level of revenue. This would lead to lowering its asset base  and increase in revenue .The overall asset turnover ratio is further increased.

 

  • It is governed by the business  practices . If the business is inclined to utilize the current base for generating future sales it may look to forego the current sales .

 

Hence, this concludes the definition of Total Asset Turnover along with its overview.

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