Asset Turnover

Asset Turnover is a financial ratio that measures the efficiency of a company in using its assets to generate sales Revenue. It is calculated by dividing the company’s total sales or revenues by its average total assets over a specific period. A higher asset turnover ratio indicates that a company is using its assets more efficiently to produce sales.

Formula: Asset Turnover = Total Sales / Average Total Assets

For example, if a company has total sales of $1,000,000 and average total assets of $500,000, the asset turnover would be:

• Asset Turnover = $1,000,000 / $500,000 = 2

This means the company generates $2 in sales for every $1 of assets.

In another case, a retail company might have total sales of $5,000,000 and average total assets of $2,000,000:

• Asset Turnover = $5,000,000 / $2,000,000 = 2.5

Here, the company is generating $2.50 in sales for every $1 of assets, indicating efficient asset utilization.