Definition of Total Asset Turnover Ratio
The total asset turnover ratio indicates the relationship between a company’s net sales for a specified year to the average amount of total assets during the same 12 months.
Example of Total Asset Turnover Ratio
Assume that during a recent year a company’s income statement reported net sales of $2,100,000. During the same period, the company’s total assets reported on its 12 monthly balance sheets averaged $1,400,000. The company’s total asset turnover for the year was 1.5 (net sales of $2,100,000 divided by $1,400,000 of average total assets).
This ratio will vary by industry, as some industries are more capital intensive than others. Always compare your company’s financial ratios to the ratios of other companies in the same industry.
