Financial Statement Analysis
- Ratio Analysis of Financial Statements (Formula, Types, Excel)
- Ratio Analysis Advantages
- Ratio Analysis
- Liquidity Ratios
- Cash Ratio
- Cash Ratio Formula
- Quick Ratio
- Quick Ratio Formula
- Current Ratio
- Current Ratio Formula
- Acid Test Ratio Formula
- Defensive Interval Ratio
- Working Capital Ratio
- Working Capital Formula
- Net Working Capital Formula
- Changes in Net Working Capital
- Cash Flow from Operations Ratio
- Cash Reserve Ratio
- Operating Cycle Formula
- Current Ratio vs Quick Ratio
- Bid Ask Spread
- Liquidity vs Solvency
- Solvency Ratios
- Equity Ratio
- Capital Adequacy Ratio
- Liquidity Risk
- Altman Z Score
- Turnover Ratios
- Inventory Turnover Ratio
- Accounts Receivable Turnover
- Accounts Receivables Turnover Ratio
- Accounts Payable Turnover Ratio
- Days Inventory Outstanding
- Days in Inventory
- Days Sales Outstanding
- Average Collection Period
- Days Payable Outstanding
- Cash Conversion Cycle
- Cash Conversion Cycle (CCC) Formula
- Fixed Asset Turnover Ratio Formula
- Debtor Days Formula
- Working Capital Turnover Ratio
- Profitability Ratios
- Profitability Ratios Formula
- Common Size Income Statement
- Vertical Analysis of Income Statement
- Profit Margin
- Gross Profit Margin Formula
- Gross Profit Percentage
- Operating Profit Margin Formula
- EBIT Margin Formula
- Operating Income Formula
- Net Profit Margin Formula
- EBIDTA Margin
- Degree of Operating Leverage Formula (DOL)
- NOPAT Formula
- Earnings Per Share
- Basic EPS
- Diluted EPS
- Basic EPS vs Diluted EPS
- Return on Equity (ROE)
- Return on Capital Employed (ROCE)
- Return on Invested Capital (ROIC)
- Return on Sales
- ROIC Formula (Return on Invested Capital)
- Return on Investment Formula (ROI)
- ROIC vs ROCE
- ROE vs ROA
- Cash on Cash Return
- Return on Total Assets (ROA)
- Return on Average Capital Employed
- Capital employed Employed
- Return on Average Assets (ROAA)
- Return on Average Equity (ROAE)
- Return on Assets Formula
- Return on Equity Formula
- DuPont Formula
- Net Interest Margin Formula
- Earnings Per Share Formula
- Diluted EPS Formula
- Contribution Margin Formula
- Unit Contribution Margin
- Revenue Per Employee Ratio
- Operating Leverage
- EBIT vs EBITDA
- Capital Gains Yield
- Tax Equivalent Yield
- LTM Revenue
- Operating Expense Ratio Formula
- Overhead Ratio Formula
- Variable Costing Formula
- Capitalization Rate
- Cap Rate Formula
- Comparative Income Statement
- Capacity Utilization Rate Formula
- Total Expense Ratio Formula
- Efficiency Ratios
- Dividend Ratios
- Debt Ratios
- Debt to Equity Ratio
- Debt Coverage Ratio
- Debt Ratio
- Debt to Asset Ratio Formula
- Coverage Ratio
- Coverage Ratio Formula
- Debt to Income Ratio Formula (DTI)
- Capital Gearing Ratio
- Capitalization Ratio
- Interest Coverage Ratio
- Times Interest Earned Ratio
- Debt Service Coverage Ratio (DSCR)
- DSCR Formula (Debt service coverage ratio)
- Financial Leverage Ratio
- Financial Leverage Formula
- Degree of Financial Leverage Formula
- Net Debt Formula
- Leverage Ratios
- Leverage Ratios Formula
- Operating Leverage vs Financial Leverage
- Current Yield
- Debt Yield Ratio
- Solvency Ratio Formula
Asset to Sales Ratio Formula (Table of Contents)
Asset to Sales Ratio Formula
Asset to Sales Ratio formula indicates how much asset a company possesses in regards to the revenue it earns using its assets.
The formula of asset to sales ratio is as follows –
Asset to Sales Ratio Formula Example
Let’s take a practical example to understand this formula.
John wants to look at RMB Company and its asset to sales ratio. John finds out that at the end of the year RMB Company has total assets of $400,000. And John also discovers that last year, RMB Company has revenues of $100,000. What would be the asset to sales ratio of RMB Company?
We will simply put the data into the formula.
- Asset to Sales Ratio formula = Total Assets / Sales
- Or, Asset to Sales Ratio = $400,000 / $100,000 = 4.
- The asset to sales ratio of RMB Company is 4.
- If we get to know the average asset to sales ratio of a similar company under the same industry, we would be able to figure out, whether 4 is a good asset to sales ratio or not.
Explanation of Asset to Sales Ratio Formula
The asset to sales ratio formula is complete opposite of asset turnover ratio formula.
In this ratio, we compare the assets with the revenue the company generates.
For example, if a company has $100,000 of assets and its revenue in the current year is $50,000; then the asset to sales ratio would be = $100,000 / $50,000 = 2.
To find out the assets, you need to look into the balance sheet of the company.
Sometimes, you need to consider both the beginning assets & ending assets and then average it to get the average total assets.
In that case, the Asset to sales formula then would change to –
For sales, you need to look at the income statement.
You need to remember that “sales” means “revenue” and it has nothing to do with profit of the year. So look straight up in the income statement.
Use of Asset to Sales Ratio
Asset to Sales ratio isn’t a common ratio and not very widely used. However, this ratio can tell a lot about a company and how it is operating.
Let’s say that you, as an investor, have been monitoring the asset to sales ratio of a company for last 2-3 years. You saw that the company had an asset to sales ratio of 5 in the previous year. In this year, the ratio is 6. How would you interpret it?
There can be two possible reasons.
- The first reason behind the increased asset to sales ratio is the lack of proper utilization of company assets. If the revenue is not increasing (or not increasing in the pace of the increasing of assets); then the assets of the company are under-utilized.
- The second reason can be due to the installation of new machineries, the sales couldn’t be increased. As a result, you may see an increased asset to sales ratio.
As an investor, you should always look at asset to sales ratio to ensure that the assets are properly utilized and the revenue of the company has been increasing in a decent rate. Otherwise, how would you ensure that you would be able to earn a decent return from your investments?
Asset to Sales Ratio Calculator
You can use the following Asset to Sales Ratio Calculator
|Asset to Sales Ratio Formula =||
Asset to Sales Ratio in Excel (with excel template)
Let us now do the same example above in Excel.
This is very simple. You need to provide the two inputs of Total Assets and Total Sales.
You can easily calculate the ratio in the template provided.
Asset to Sales Ratio Video
This has been a guide to Asset to Sales Ratio Formula, practical Asset to Sales Ratio example and Asset to Sales Ratio calculator along with excel templates. You may also have a look at these articles below to learn more about Financial Analysis –