Assets are essentially items owned (or leased) by the business which will bring economic benefits.

Some examples of Assets

  • Buildings
  • Vehicles
  • Machinery
  • Office properties

 

 

Assets in real life

 

 

Assets may be held for a long time for use in the business (such as motor vehicle) or alternatively be short-term assets (such as stock which held for immediate resale).

Asset turnover ratio

Asset Turnover rateThis ratio compares sales to total assets employed (fixed assets and current assets). Business with a large asset infrastructure, perhaps a steel works, have lower ratios than businesses with minimal assets, such as management consultancy or shop businesses. Once more, where the information is available, it is best to use average total assets. For sample company, average total assets are not available, we therefore use this year's total assets:

sales / Average total => 200 / 392 => 0.51 times

In other words, every year sample company generates about half of its total assets in sales. This is very low. There are many othert potential asset turnover ratios where sales are compared to, for example fixed assets or total net assets.