Sales to Total Assets Ratio

Sales are the lifeblood of any company. Sales generate revenues, and revenues turn into profits if costs are kept in check. Sales growth is one of the most important determinants of company performance for investment analysts. Investment analysts also consider a firm's asset size. The more assets a firm holds, the more capable it is of securing financing and paying off its debts.

  1. Sales

    • Sales are found on the income statement. The income statement starts with sales and trickles down to net income. The more sales a company can make, the more profitable it will be, all other things being equal. Investment analysts consider quarterly sales, monthly sales, same store sales, sales growth and market share as ways to forecast or determine the direction of sales in the future.

    Assets

    • The value of assets can be found on the balance sheet. Assets are classified as either current or long-term. Current assets are those that are going to be used or turned to cash within a year. Long-term assets are usually referred to as capitalized assets, because they can be depreciated over the life of the asset.

    Ratio Analysis

    • There are two major forms of investment analysis -- fundamental and technical. Fundamental analysis is used to determine what to buy, and technical analysis is used to determine when to buy. In fundamental analysis, analysts compare ratios that provide information about company performance and operations. Sales to total assets is one of the ratios. It helps an analyst compare sales performance to the company's asset size. Sales to total assets is used in conjunction with return on assets (ROA) to gain insight about the company's ability to manage assets.

    Sales to Total Assets Interpretation

    • In general, a company with a high sales-to-total-assets ratio is stronger than a company with a low sales-to-total-assets ratio. As a company grows in size, it should be able to grow its sales as well. The higher the ratio of sales to total assets, the more efficiently the company is run and the better company leadership is at managing assets. The same goes for ROA.

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