The average total assets on a company's balance sheet include all its assets accounting for the current and preceding years. In this article, we discuss what average total assets are, why they're important to understand and how to calculate average total assets with some helpful examples. Additionally, you can gain valuable insight into where it's necessary to improve processes and integrate strategies that add to your company's bottom line. Understanding the average total assets can help you evaluate the effectiveness of investment activities and financial processes. It may also mean that the company has **very high accounts payable, which signifies the company's inability to pay its bills.Average total assets = (total assets for current year) + (total assets for previous year) / 2īusinesses and organizations rely on assets to fund important activities and operations that support growth and profitability. For instance, an extremely high working capital turnover ratio may indicate that a company does not have enough working capital to support its growth, and hence needs to further raise funds from investors. A working capital turnover that is extraordinarily high may not be suitable in certain situations. However, knowing how to calculate working capital turnover isn't enough. It means that it can generate more revenue per working capital. Working capital management is a practice that involves monitoring current assets, current liabilities, and cash flow to make sure that the company's operation can run smoothly.Ī high working capital turnover indicates that the working capital management of the company is efficient. The working capital turnover ratio helps us to assess the efficiency of a company's operation, in particular working capital management. If keeping track of all these variables sounds complicated to you, don't worry, just put all the numbers into our working capital turnover ratio calculator to get your answer.Īfter discussing the working capital turnover ratio meaning and how to calculate the working capital turnover ratio, let's take some time to talk about how we should interpret the results: Hence, the working capital turnover for Company Alpha is $8,000,000 / $1,600,000 = 5x. Working capital turnover = revenue / average working capital This is the final step - calculating the working capital turnover using the working capital turnover formula shown below: Thus, in our example, the average working capital for Company Alpha is equal to $2,500,000 - $900,000 = $1,600,000. The next step is to calculate the average working capital using the formula below:Īverage working capital = average current assets - average current liabilities We can calculate these using the following formulae:Īverage current assets = (starting current assets + closing current assets) / 2Īverage current liabilities = (starting current liabilities + closing current liabilities) / 2 Next, we need to calculate the average current assets and the average current liabilities.
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