Explain how to calculate total asset turnover. Describe what it reveals about a company's financial condition, whether a higher or lower ratio is desirable, and how it is best applied for comparative purposes.
What will be an ideal response?
Total asset turnover is calculated by dividing net sales by average total assets. The result is interpreted as the amount of net sales generated by each dollar of assets. Thus, the ratio reflects a company's ability to efficiently use its assets to generate sales. A high number is desirable; however, it must be interpreted in comparison with prior years as well as with competitors and industry standards.
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