Definition
Total assets are all the assets a company owns.
From the capital sources of the assets, some of the assets are funded through shareholders paid in capital and retained earnings of the business. Others are funded through borrowed money. Therefore, total assets can be calculated as:
Total Assets
= Total Current Assets + Total Long Term Assets
= Total Shareholders Equity + Total Liability
Total Assets is connected with Return on Assets by
Return on Assets (ROA) = Net Income / Total Assets
In the article
Joining The Dark Side: Pirates, Spies and Short Sellers, James Montier reported that In their US sample covering the period 1968-2003, Cooper et al find that firms with low asset growth outperformed firms with high asset growth by an astounding 20% p.a. equally weighted. Even when controlling for market, size and style, low asset growth firms outperformed high asset growth firms by 13% p.a. Therefore a company with fast asset growth may underperform.
Total Assets is linked to total revenue through Asset Turnover:
Asset Turnover = Total Sales / Total Assets
Therefore, if a company grows its assets faster than its sales, the asset turnover will decline. This might be a warning sign for the business.
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