From The Hoss's Mouth
Asset turnover ratio is another financial tool investors use in their analysis of a company's efficiency. It calculates a business's effectiveness at using its assets in producing sales or revenue. The formula for this simple calculation is as follows:
Asset Turnover = Revenue/Assets (Assets in the example below are averaged for the period being calculated)
Let's take a look at Amazon for an example:
In 2005 Amazon had total assets of $3,696,000,000
In 2006 Amazon had total assets of $4,363,000,000
Average Assets = ($3,696,000,000 + $4,363,000,000) /2 = $4,029,500,000
Amazon's Total Revenue for 2006 was $19,166,000,000
Amazon's 2006 asset turnover ratio: $4,029,500,000 /$19,166,000,000 = .21
What this tells the investor is that for every dollar of assets Amazon had in 2006, they sold $.21 worth of product and services.
Money Magazine Hoss must point out that when comparing asset ratios it is important to compare companies that are in the same business industry. Generally, the company with the highest ratio is the most efficient.
Stay on Track,
Money Magazine Hoss
Next Hoss Cents Free Financial Money Magazine Post: Asset Turnover
Return to previous post from Calculating Asset Turnover Ratio
Related Posts:
Calculating Return On Equity
Financial Statements Explained
The Balance SheetThe Income Statement
Calculating Gross profit Margin Calculating Operating MarginInvestment Strategy Dollar Cost Averaging
Calculating Net Profit Margin
That is very interesting. It is a nice formula to calculate asset turn over ratio.It will help the company to realize the profit of the company and to expand their business effectively.
ReplyDelete