How to Calculate Average Operating Assets

Step-by-Step Guide

1. 1

   Step 1: Identify the assets that are considered part of the operating process.

   This typically includes assets such as fixed assets, the accounts receivable currently outstanding, equipment, the balance of cash accounts, and the total inventory that is currently on hand as of the last date of the period under consideration.
   
   Do not include assets that are not part of the operating (production) process.Include some intangible assets if they are necessary to the business, such as licenses and patents.
   
   You would also include land and equipment, unless the equipment is idle.
2. 2

   Step 2: Calculate the total monetary value of the beginning operating assets.

   This total is the total operating assets on hand as of the first day of the time period under consideration.
   
   For example if the calculation is based on finding the average operating expenses for a quarter, the beginning assets will be those on hand as of the first day of that quarter.
   
   You can determine the monetary value of the inventory and equipment, as well as the cash balance and outstanding accounts receivables, by looking in the General Ledger and relevant accounts.
   
   For this example, the value of beginning operating assets is $500,000 on April
   1. , These are the assets on hand at the end of the period under consideration.
   
   This figure is usually referred to as the ending assets and will be different from the figure identified for the beginning of the period.
   
   This is because some of the assets will be consumed in the interim, while other assets are acquired during that same time frame.
   
   When calculating ending assets for a given quarter, use the total value of assets as of the last business day of that quarter.
   
   For this example, the value of the ending operating assets is $550,000 on June 30 (a one-quarter time period). , Combining the two figures makes it possible to arrive at a number that can then be used to identify the average operating assets for the desired time period.
   
   You will be taking an average of the two numbers. $500,000 beginning operating assets + $550,000 ending operating assets = $1,050,000. , The result will be the average operating assets for that period, providing a figure that can easily be compared to the AOA for previous periods.
   
   This in turn makes it easier to determine if the company is becoming more efficient in the use of its resources or if a negative trend is emerging that needs to be addressed.
   
   For example, divide $1,050,000 by 2 = $525,000.
   
   Compare this to previous quarters' numbers.
   
   If it is higher look into reducing accounts receivable levels or reducing inventory.
3. 3

   Step 3: Determine the total monetary value of the ending operating assets.

4. 4

   Step 4: Add the total amount of beginning assets to the total amount of the ending assets.

5. 5

   Step 5: Divide the combined amount of beginning and ending assets by 2.

Detailed Guide

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