Question 4: Calculate the total asset turnover, the P, P, & E Turnover, and the intangible asset turnover for each of the past two years. Are these turnover ratios increasing or decreasing? What might explain these trends? Total Asset Turnover is a financial ratio that measures the efficiency of company’s use of its assets to product sales. It is a measure of how efficiently management is using the assets at its disposal to promote sales.
The ratio helps to measure the productivity of a company’s assets. Total Asset Turnover is calculated by Net Sales divided by Total Assets. We had to calculate the Total Asset Turnover, the Property, Plant, and Equipment Turnover, and the Intangible Asset Turnover Ratios in 2010 and 2011 for Johnson and Johnson Company. The below table shows the above ratios in 2010 and 2011. |2010 |2011 | |Total Asset Turnover = |61,587 = |60% |65,030 = |57% | | |102,908 | |113,644 | | | | | | | | |P, P, & E Turnover = |61,587 = |4. 3x |65,030 = |4. 41x | | |14,553 | |14,739 | | | | | | | | |Intangible Asset Turnover = |61,587 = |1. 92x |65,030 = |1. 89x | | |32,010 | |34,276 | |
For the Total Asset Turnover, there is a decrease from 60% in 2010 to 57% in 2011. For the Property, Plant, and Equipment Turnover, there is an increase from 4. 23 in 2010 to 4. 41 in 2011. For the Intangible Asset Turnover, there is a decrease from 1. 92 in 2010 to 1. 89 in 2011. Increases in the asset turnover ratio over time may indicate a company is growing into its capacity. A decreasing ratio may indicate the opposite. Asset purchases made in anticipation of coming growth (or the sale of unnecessary assets in anticipation of declining growth) can suddenly and somewhat artificially change a company's asset turnover ratio.
