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Asset turnover definition

Description

Asset turnover ratio shows how much revenues (sales) are generated for one dollar of total assets. Data to calculate this ratio is collected from balance sheet income statement.

Company’s owners are interested in how efficiently their asset is used, so the asset turnover is important for them.

Norms and limitations

The higher the value of this ratio, the better it is for the company, but generally there are no common norms for the ratio.

It is recommended to compare this ratio with those of the companies working, within the same industry. Low value might not usually indicate a bad performance of the company, as it might mean that the industry company is operating in is capital intensive.

Formula

Net sales (revenues, sales) can be described as sales deducting returns and discount for customers.

Assets (Total assets) – mean every asset that the company owns and that is shown on the balance sheet. Total assets equals total liabilities + owner’s equity.