However, a higher average total asset value can indicate companies may need to improve how they invest assets back into important business processes. Generally, a low average total asset value in comparison to sales numbers shows high efficiency in allocating assets to business operations that result in growth and profitability. Understanding your organization's average total assets is essential to understanding how efficiently management is reinvesting assets into important sales and business processes. Related: What Is an Asset? Importance of understanding average total assets When calculating average total assets, you can apply the formula:Īverage total assets = (total assets for current year) + (total assets for previous year) / 2.Ĭompanies often add up several types of assets on the balance sheet when determining the total asset values in the formula, including: Businesses and organizations compare the average total asset value to the total sales value for the same period to determine how much in assets is necessary to support overall sales activities. 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. 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.
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