Average Total Assets can be characterized as the average number of assets owned by a company during both the current and previous year. The formula for Average Total Assets can be calculated as follows: (aggregate assets at the end of the current year + aggregate assets at the end of the previous year) ÷ 2.
As an economic tool, Average Total Assets are used to calculate the average amount of assets a company has acquired during the past two years. An asset is defined as a particular possession a company owns and intends to benefit from in the future. Assets can also be useful if they incur fewer expenses than the company’s average profit. In the formula, aggregate assets refer to the total amount of properties obtained by a company in one calendar year. This accounting tool is used to define the return on average assets, which refers to the profitability of the assets owned by a company. All of the average total assets are usually compiled into a company’s balance sheet to keep track of profits obtained through specific assets.
The importance of Average Total Assets is especially vivid in relatively small companies. In order to develop financially, a small business first has to invest money, or obtain assets. Each year thereafter, the company calculates its aggregate assets to see how much money it has spent on its assets during the calendar year. After two years of business, the company is able to determine whether the resources it obtained will create profit, are already profitable, or are completely exhausted and irrelevant.