TOTAL ASSET TURNOVER Definition

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TOTAL ASSET TURNOVER measures managements efficiency in managing all of a firm's assets - specifically the generation of revenues from the firms total investments in assets. This ratio is extremely important in high asset firms such as manufactures and telecommunications companies. Generally, the higher this ratio as compared to like companies or the industry (Formula: Net Revenue / Total Assets):

  •  the smaller the investment required to generate sales, thus the more profitable the firm.
  •  indicates the firm has less money tied up in fixed assets for each dollar of sales revenue.

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PRIME COST is equal to the sum of DIRECT MATERIAL plus DIRECT LABOR.

DEPRECIATION is the amount of expense charged against earnings by a company to write off the cost of a plant or machine over its useful live, giving consideration to wear and tear, obsolescence, and salvage value. If the expense is assumed to be incurred in equal amounts in each business period over the life of the asset, the depreciation method used is straight line (SL). If the expense is assumed to be incurred in decreasing amounts in each business period over the life of the asset, the method used is said to be accelerated. Two commonly used variations of the accelerated method of depreciating an asset are the sum-of-years digits (SYD) and the double-declining balance (DDB) methods. Frequently, accelerated depreciation is chosen for a business tax expense but straight line is chosen for its financial reporting purposes.

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