Asset turnover

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Asset turnover = sales/ net assets<BR><BR>I'm a bit confused as to what 'net assets' actually includes. I know this is a stupid question, but I've seen an example where net assets is fixed assets + current assets - current liabilities (i.e. excluding long term loans) and then another question where it is total assets - total liabilities (i.e. including long-term loans). I just don't want to get it wrong in the exam even though both ways are probably right.

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Asset turnover

    We've been told to use FA + (CA-CL) ie don't include long term loans
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Asset turnover

    <BR>I try not to confuse myself and simply take the figure at which the balance sheet balances. In some exams they only give you one half anyway, so I figure this works!
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Asset turnover

    I think so far as ratios are concerned it is easy to make mistakes in exam situations. We have been told to always write out the wordy formula first and then carry out the calculation. This way if you have pulled the wrong figure the examiner can follow through your original formula and take this into consideration when marking your analysis. You may actually have the right formula but make a calculation error which leads you to draw the wrong conclusion - if all the information isn't there the examiner will simply think you don't understand the ratio or cannot analyse. We are told you will be given credit for your technique even if your final answer is incorrect. <BR><BR>Hope this reassures a little.

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