![]() This is because the key revenue-driving factor would be something else like Human Capital, etc which are not appearing on the Balance Sheet.At times evaluating companies solely through asset turnover ratio would be inappropriate.On the other hand, a lower asset turnover ratio indicates that the company is inefficient in managing its assets.Generally, a high asset turnover ratio indicates that the company is more efficient since it is able to generate more revenue with given assets.As we have already understood, the Asset turnover ratio indicates if the company is efficient in using its assets.We can even perform trend analysis to see how the ratio has moved historically. Hence, we need to compare the ratio with other companies in the same industry. On a standalone basis, the asset turnover ratio of 2.4 times may not give a clear picture. Hence, efficient management of overall assets can be seen in the case of Walmart. This indicates that the company is able to generate revenue which 2.4 times the value of overall assets. Now that we have all the values, let us calculate the turnover ratio for Walmart.Īsset turnover ratio = Net sales / Average total assetsĪs evident, Walmart asset turnover ratio is 2.5 times which is more than 1. Let us calculate Average total assets for Walmart Now, take a look at Walmart’s consolidated Balance Sheet. The Sales value given in the income statement is after reducing sales returns, if any. In the case of Walmart, Net Sales can be easily calculated from the income statement. In our next example, let us calculate the turnover ratio for using excel.ĭownload the asset turnover ratio template using the below option.īelow shown is the Consolidated Income Statement of Walmart. ![]() Nonetheless, Company B is relatively more efficient in utilizing its assets to generate revenue when compared to Company A. They are unable to generate revenue which is at least equal to their asset base. What this means is that companies are not managing their overall assets efficiently. Hence, the ratio for both companies is below 1 times. Now that we know all the values, let us calculate the ratio for both the companies.Īsset turnover ratio = Net Sales / Average total assets Hence the same can be used as Average total assets In the given example, we have total assets for only one period. Let us calculate Average total assets for both the companies. Now, consider the below-given Balance Sheet for both the companies. Let us calculate Net sales for both the companies Values given in the examples below are in $ millions.Ĭonsider the below-given income statement for both the companies. We take Company A and Company B for calculating the ratio. Let us understand the assets turnover ratio with a hypothetical example.
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