finance

The Asset Turnover Ratio
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Abstract
The asset turnover is a concept that explains the total assets in relation to the total sales held by a firm. The asset turnover concept basically explains the reason that a certain amount of sales is generated by a certain proportion of assets. This ratio is an example of an efficiency ratio which shows how efficiently a firm operates on the premise of the number of sales or business that are generated. The asset turnover concept is represented by a ratio which is percentage form computed as net sales divided by the total value of assets as indicated in the balance sheet or statement of a company’s financial position. The asset turnover ratio is represented by each dollar any other unit currency as a measure of the assets and the subsequent resulting change in sales value. It must be noted that the net sales referred to are the sales excluding the refunds or sales returns that may be offered by a business. The net assets may be the total assets or the average assets which are opening assets plus the closing assets divided by two to yield the average value (Accounting Course, 2018).
Keywords: Asset Turnover, Net Assets, Average Net Value, Fixed Assets, Financial Success, Operational Capacity.
The Asset Turnover Ratio
The Importance of the Asset Turnover Ratio and Concept
The asset turnover ratio is a measure of how efficiently a firm operates with regard to the sales level and asset level. The ratio explains how a company can utilize assets to generate the given sales revenue.

The asset turnover ratio is, therefore, a fundamental ratio indicator for efficient profitable firms and non-efficient profitable firms. The higher the ratio, the better it is to indicate a higher level of efficiency and a firm’s operational capacity. A low ratio is an indicator of probable production or management problems within a firm’s operations. An asset turnover ratio of one essentially means that the firm generates a unit dollar of sales for a unit of assets. Another point to note is that the asset turnover ratio may be split by analysts in the determination of fixed assets efficiency or assets efficiency in generating sales on financial statements. The asset turnover ratio has for time immemorial been used by financial analysts to determine the financial fluidity of a firm and its ability to survive during difficult moments. For example, firms with a lower ratio are likely to suffer financial setbacks as a result of dwindled sales. On the other hand, organizations with a higher ratio of asset turnover can relinquish some assets to minimize the shock experienced by dwindled sales. This analysis hence notes that the asset turnover is a critical threshold in the determination of the financial stability and a firm’s long and short-term sustainability. Other than offering a view of a firm’s financial status depending solely on sales and assets, the asset turnover ratio is a reliable tool for evaluating the long-term success on an asset-sales benchmark.
Reference
BIBLIOGRAPHY l 1033 Accounting Course. (2018). Asset Turnover Ratio. The Accounting Course Official. Retrieved from https://www.myaccountingcourse.com/financial-ratios/asset-turnover-ratio