Question

Hello

I am working on my assignment for management class. I have calculated the total asset turnover ration for year 2015 and 2016 by using this formula.

Total asset turnover ratio= total operating revenues/ total assets

year 2016= 1378287738/1567838211= 0.87

year 2015= 1227830814/1384461557= 0.88

My question is how can i know the benchmark?

Answer 1

The total asset turnover ratio is an efficiency ratio which is used for measuring how well the organization uses their assets to generate revenues.

The higher total asset turnover ratio is favorable.

The following are the reasons for lower turnover ratio.
* Poor inventory management
* Poor collection methods
* Poor utilization of fixed assets

Depending on the industry, the benchmark asset turnover ratio will change greatly.

The industry with low profit margin will generate higher ratio

The capital intensive industries (real estate) usually report a lower ratio.

Therefore, the comparison will be made with the different comapnies in a same sector.