Net sales are usually the figure your company would report in your income statement. If your company has gross sales of $110,000, sales returns of $5,000, sales allowances of $3,000 and sales discounts of $2,000 in a period, this is the net sales formula calculation: Net Sales = Gross Sales – Returns – Allowances – Discounts Net sales are represented as a formula, which looks this: This makes it different than “gross sales,” which is the grand total of every sale transaction that occurred within a specific period, but without any subtractions. “Net sales” refers specifically to the sales revenue your company has earned after subtracting returns, allowances, discounts or any other losses. Here is how you can calculate the separate elements of this formula. Once you have these figures, just plug them into the formula to calculate your total asset turnover. You must calculate values for net sales and total assets separately if you intend to calculate total asset turnover using the above formula.
However, each component of this formula represents another formula in and of itself. Another way to think of it is to assume every $1 in assets generates 10 cents in net sales revenue. This means that the company’s assets generate 10% of net sales per their value. Total Asset Turnover = Net Sales / Total Assetsįor example, if a company has $1 million in total assets and makes $100,000 in net sales, the formula would be the following: Total asset turnover is represented as a relatively simple formula: Related: 8 Simple Ways Small Businesses Can Increase Their Sales More specifically, you can use your total asset turnover ratio to determine the dollar value you’re receiving in sales compared to the dollar value of your assets. It also indicates that your assets are still a value to your company and do not need to be discarded or replaced. In other words, it indicates your company is productive, efficient and generating little waste. Most companies will want to see a high total asset turnover ratio because it means the company is effectively using its assets. It’s a tool you can use to measure how efficiently your company is using its assets to generate real revenue.
The total asset turnover ratio of your business is a type of efficiency ratio that measures the value of your sales revenue in relation to the value of your company’s assets. You should be aware of the total asset turnover ratio when calculating income at the end of the year because it has significant implications for your business. Ratios are one way to determine the efficiency of certain departments or assets - or even of your entire business. There are many tools at your disposal for analyzing your business’s sales performance.
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