Average operating assets refers to the normal amount of those assets needed to conduct the ongoing operations of a business. This figure can be included in the operating assets ratio, which compares the proportion of these assets to the total amount of assets that a business owns. A high ratio indicates that company management is making good use of its assets.
The assets normally included in the calculation of average operating assets are cash, prepaid expenses, accounts receivable, inventory, and fixed assets. To find the average, follow these steps:
- Aggregate the balances in these accounts for the end of the preceding period.
- Aggregate the balances in these accounts for the end of the current period.
- Add the two totals together and then divide by two.
The average operating assets figure can also be compared to annual sales on a trend line. This information reveals whether a business is becoming more or less efficient in its use of assets to generate sales.