Asset Turnover Ratio
A financial efficiency metric showing how effectively a company uses assets to generate sales, calculated by dividing revenue by average total assets.
Asset Turnover Ratio
A financial efficiency ratio that measures how effectively a company uses its assets to generate sales, calculated by dividing net sales by average total assets.
For example, a retailer with annual sales of $5 million and average total assets of $2 million would have an asset turnover ratio of 2.5, indicating it generates $2.50 in sales for every $1 in assets, which could be compared to industry benchmarks.
Asset turnover varies significantly by industry, with retailers and service businesses typically having higher ratios than capital-intensive manufacturers. Analyzing trends in this ratio helps management evaluate asset utilization efficiency and identify potential underperforming assets requiring attention.