Asset Turnover

Asset turnover is meant to measure a company's efficiency in using its assets. The higher the number, the better, although investors must be sure compare a business to its industry.

Asset Turnover

Asset Turnover reveals the efficiency of corporate assets in generating revenue.


Asset turnover Calculation

To calculate asset turnover, take the total revenue and divide it by the average assets for the period studied.

Asset Turnover calculation

Asset turnover Interpretation

Asset turnover is meant to measure a company's efficiency in using its assets. The higher the number, the better, although investors must be sure compare a business to its industry. It is a fallacy to compare completely a unrelated businesses. The higher a company's asset turnover, the lower its profit margin tends to be (and visa versa).

If there is a low turnover, it may be an indication that the business should either utilize its assets in a more efficient manner or sell them. Asset turnover ratios can also be calculated for specific assets such as the ratios of sales to cash and sales to inventory. Higher ratios reflect favorably on the firm's ability to employ assets effectively.

Asset turnover is used in the Dupont Model.

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