DEFINITION of 'Asset Turnover Ratio'
The ratio of the value of a company’s sales or revenues generated relative to the value of its assets. The Asset Turnover ratio can often be used as an indicator of the efficiency with which a company is deploying its assets in generating revenue.
Asset Turnover = Sales or Revenues / Total Assets
Generally speaking, the higher the asset turnover ratio, the better the company is performing, since higher ratios imply that the company is generating more revenue per dollar of assets. Yet, this ratio can vary widely from one industry to the next. As such, considering the asset turnover ratios of an energy company and a telecommunications company will not make for an accurate comparison. Comparisons are only meaningful when they are made for different companies within the same sector.
VIDEO
BREAKING DOWN 'Asset Turnover Ratio'
Asset turnover is typically calculated over an annual basis using either the fiscal or calendar year. The total assets number used in the denominator can be calculated by taking the average of assets held by a company at the beginning of the year and at the year’s end.
For example, suppose company X has an asset base of $400 million at the beginning of a given year and $500 million at the end of the same year, and suppose that company X generated $900 million in revenues over the course of that year. The asset turnover ratio for company X is therefore:
$900 million / [($500 million + $400 million) / 2] =
$900 million / [$900 million / 2] =
$900 million / $450 million = 2.00
The asset turnover ratio tends to be higher for companies in certain sectors than in others. Retail, for example, is the sector that most often yields the highest asset turnover ratios, scoring a 2.05 in 2014. Both it and consumer staples have relatively small asset bases but have high sales volume.
Conversely, firms in sectors like utilities and telecommunications, which have large asset bases, will have lower asset turnover. The financial sector, for example, often trails in its asset turnover ratio, scoring a 0.08 in 2014.
Using the Asset Turnover Ratio
Consider the asset turnover ratio for WalMart Stores Inc. (WMT). When the fiscal year ended on January 31, 2014, WalMart had total revenues of $476 billion. WalMart’s total assets were $203 billion at the beginning of that fiscal year and $205 billion at fiscal yearend, for an average of $204 billion. WalMart’s asset turnover ratio was therefore 2.36 ($476 billion/ $204 billion).
In contrast, AT&T Inc. (T) had total revenues of $132 billion when the fiscal year ended on December 31, 2014. Total assets at the beginning and end of the 2014 fiscal year were $278 billion and $293 billion respectively, for an average asset base of $287 billion. AT&T’s asset turnover ratio in 2014 was therefore 0.46 ($132 billion / $287 billion).
Clearly, it would not make much sense to compare the asset turnover ratios for WalMart and AT&T, since they operate in very different industries. But comparing the asset turnover ratios for AT&T and Verizon Communications Inc. (VZ), for instance, may provide a clearer picture of asset use efficiency for these telecom companies. In the same fiscal year as in the AT&T example above, Verizon had total revenues of $127 billion. Total assets at the beginning and end of the year were $274 billion and $232 billion, respectively, for an average asset base of $253 billion. As such, in 2014 Verizon’s asset turnover ratio was 0.50 ($127 billion / $253 billion), about 9% higher than AT&T’s in the same year.
Yet, this kind of comparison does not necessarily paint the clearest possible picture. It is possible that a company’s asset turnover ratio in any single year differs substantially from previous or subsequent years. For example, while AT&T’s asset turnover ratio was 0.30 in 2006, it rose nearly a full fifty percent to reach 0.44 in 2007, the following year. For any specific company, then, one would do well to review the trend in the asset turnover ratio over a period of time to check whether asset usage is improving or deteriorating.
Many other factors can affect a company’s asset turnover ratio in a given year, such as whether or not an industry is cyclical. (For more, see: Cyclical Versus NonCyclical Stocks.)
History
The Asset Turnover ratio is a key component of DuPont analysis, a system that the DuPont Corporation began using during the 1920s. DuPont analysis breaks down Return on Equity (ROE) into three parts, one of which is asset turnover, the other two being profit margin and financial leverage. In splitting ROE into distinct components, this form of analysis allows one to analyze the nuances of a high or low ROE, to attempt to determine what causes may be contributing to a company’s ROE performance and to compare the components of ROE with those of other companies.

Receivables Turnover Ratio
An accounting measure used to quantify a firm's effectiveness ... 
Debt Ratio
A financial ratio that measures the extent of a company’s or ... 
Current Ratio
The current ratio is a liquidity ratio measuring a company's ... 
Debt/Equity Ratio
1. A debt ratio used to measure a company's financial leverage. ... 
PriceEarnings Ratio  P/E Ratio
The PricetoEarnings Ratio or P/E ratio is a ratio for valuing ... 
Premium to Surplus Ratio
Net premiums written divided by policyholders’ surplus. The premium ...

Fundamental Analysis
Ratio Analysis Tutorial
If you don't know how to evaluate a company's present performance and its possible future performance, you need to learn how to analyze ratios. 
Fundamental Analysis
Decoding DuPont Analysis
Get a deeper understanding of ROE with these threestep and fivestep calculations. 
Fundamental Analysis
Measuring Company Efficiency
Three useful indicators for measuring a retail company's efficiency are its inventory turnaround times, its receivables and its collection period. 
Investing
Asset Turnover Ratio
Investopedia explains: The asset turnover ratio is a measure of a company's ability to use its assets to generate sales or revenue, and is a calculation of the amount of sales or revenue generated ... 
Fundamental Analysis
An Introduction To Coverage Ratios
Interest coverage ratios help determine a company's ability to pay down its debt. 
Retirement
Pay Attention To Your Fund’s Expense Ratio
Despite trends indicating an overall decrease in fees across many fund categories, investors should still pay attention to expense ratios: even small differences in fees can have a significant ... 
Investing
Using Liquidity Ratios
Learn more about these quick and intuitive ratios you can use to analyze a stock's liquidity. 
Budgeting
Use ROA To Gauge A Company's Profits
Do you rely too heavily on ROE? Consider using return on assets for a more complete picture. 
Forex Education
8 Simple Investing Ratios You Need To Know
Investing is a complex and often daunting experience, these equations are actually quite simple. 
Retirement
Turnover Ratios Weak Indicator Of Fund Quality
This indicator is not as important as some investors might think.

How can a company raise its asset turnover ratio?
The asset turnover ratio measures a company's efficiency and productivity. A company can increase a low asset turnover ratio ... Read Full Answer >> 
What are some of the advantages and disadvantages of DuPont Analysis?
DuPont analysis is a potentially helpful tool for analysis that investors can use to make more informed choices regarding ... Read Full Answer >> 
What do efficiency ratios measure?
Efficiency ratios measure a company's ability to use its assets and manage its liabilities effectively. Some efficiency ratios ... Read Full Answer >> 
Which financial ratios are considered to be efficiency ratios?
Efficiency ratios generally measure a company's ability to use its assets and liabilities to generate revenues or profits. ... Read Full Answer >> 
What is the difference between efficiency ratios and profitability ratios?
Efficiency ratios and profitability ratios are tools used in fundamental analysis. These ratios help investors with their ... Read Full Answer >> 
How is asset turnover calculated?
The asset turnover ratio measures the efficiency of a company's assets to generate revenue or sales. It compares the dollar ... Read Full Answer >> 
What are the main income statement ratios?
The following financial ratios are derived from common income statements and used to compare different companies within the ... Read Full Answer >> 
What are the generally accepted accounting principles for inventory reserves?
As with most matters related to generally accepted accounting principles (GAAP), accountants assigned with the task of applying ... Read Full Answer >> 
What does a high inventory turnover tell investors about a company?
Inventory turnover is an important metric for evaluating how efficiently a firm turns its inventory into sales. Below is ... Read Full Answer >> 
Why is it sometimes better to use an average inventory figure when calculating the ...
Inventory turnover is an important metric for evaluating how efficiently a firm turns its inventory into sales. For a couple ... Read Full Answer >> 
How do you calculate return on equity (ROE)?
Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >> 
Are companies with a negative return on equity (ROE) always a bad investment?
Companies that report losses are more difficult to value than those that report consistent profits. Any metric that uses ... Read Full Answer >> 
How do I calculate the inventory turnover ratio?
Managing inventory levels is important for most businesses and this is especially true for retailers and any company that ... Read Full Answer >> 
Why is return on investment (ROI) a bad measure for calculating longterm investments?
ROI is a performance metric used to evaluate the financial efficiency of an investment, or to compare the relative efficiency ... Read Full Answer >> 
How can return on investment (ROI) calculations be manipulated?
Return on Investment (ROI) is a performance metric used to evaluate the financial efficiency of an investment, or to compare ... Read Full Answer >>