Average total assets

Average total assets is defined as the average amount of assets recorded on a company's balance sheet at the end of the current year and preceding year. This figure is most commonly used in comparison to the total sales figure for the current year, to determine the amount of assets required to support a certain amount of sales. This is a useful comparison, since a low asset level in comparison to sales implies that the management team is making highly efficient use of its assets in running the business.

The average total assets formula is:

(Aggregate assets at end of current year + Aggregate assets at end of preceding year) ÷ 2

The comparison to total sales is less useful for a very successful company that has accumulated a large amount of cash, since the cash figure is included in the calculation of average total assets. In this case, the calculation can be modified to exclude more than a modest amount of cash.

Another variation is to average the aggregate amount of assets at the end of each month. By doing so, the calculation avoids any unusual dip or spike in the total amount of assets that may occur if only the year-end asset figures were used.

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Financial Analysis Education Bundle 
The Balance Sheet