Definition:
This ratio tells you how many dollars of revenue (the value) your company gets relative to the amount invested in total assets, not just your fixed assets. This includes cash, receivables, inventory, property, plant and equipment as well as other long-term assets.
Example:
Total Asset Turnover is calculated by dividing revenue by total assets:
For example, if a company’s revenue was $368,689,295 and its total assets was $245,193,936 then its total asset turnover is:
Book Excerpt:
(Excerpts from Financial Intelligence, Chapter 24 – Efficiency Ratios)
Total asset turnover gauges not just efficiency in the use of fixed assets, but efficiency in the use of all assets. If you can reduce inventory, total asset turnover rises. If you can cut average receivables, total asset turnover rises. If you can increase sales while holding assets constant (or increasing at a slower rate), total asset turnover rises. Any of these managing-the-balance-sheet moves improves efficiency.
