Total Assets Turnover Ratio Analysis

Definition: Total Assets Turnover Ratio (TATR) is used to measure the firm's ability to utilize its assets to generate sales. It is an indication to the firm's operation efficiency. A lower ratio means inefficient utilization of assets.

Formula:
Total Assets Turnover Ratio = Net Sales / Total Assets
Or,
TATR = Net Sales / Average Total Net Assets

Example 1:
APP Ltd has the following information:
Net Sales = $88,800
Net Assets (2009) = 55,000
Net Assets (2010) = 65,000

Then, Average Net Assets = (55,000 + 65,000) / 2 = $60,000
Total Asset Turnover ratio = 88,800 / 60,000 = 1.48 times
This indicates that APP Ltd turns over its assets 1.48 times per year.

Example 2:
Calculate TATR for XYZ Company, given the following information:
Total sales $1,075,000
Sales returns $75,000
Fixed Assets (Net book value) $660,000
Bank $20,000
Cash $30,000
Trade Debtors $35,000
Other Debtors $15,000
Stocks $40,000

Solution:
Net sales = 1,075,000 - 75,000 = $1,000,000
Total Assets = 660,000 + 20,000 + 30,000 + 35,000 + 15,000 + 40,000 = $800,000
TATR = Net Sales / Total Assets = 1,000,000 / 800,000 = 1.25 times
This means that for every dollar of assets, XYZ Company generated $1.25 in revenue.

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