DEFINITION of 'Asset Turnover Ratio'
The amount of sales or revenues generated per dollar of assets. The Asset Turnover ratio is an indicator of the efficiency with which a company is deploying its assets.
Asset Turnover = Sales or Revenues/Total Assets
Generally speaking, the higher the ratio, the better it is, since it implies the company is generating more revenues per dollar of assets. But since this ratio varies widely from one industry to the next, comparisons are only meaningful when they are made for different companies in the same sector.
The Asset Turnover ratio is also a key component of DuPont Analysis, which breaks down Return on Equity into three parts, the other two being profit margin and financial leverage.
INVESTOPEDIA EXPLAINS 'Asset Turnover Ratio'
Asset Turnover is typically calculated over an annual basis – either fiscal or calendar year – with the “Total Assets” figure used in the denominator calculated as the average of assets at the beginning and end of the year.
For example, company X may have an asset base of $400 million at the beginning of a given year and $500 million at yearend, with revenues of $900 million generated in that year. The asset turnover ratio for company X is therefore ($900 million / $450 million) = 2.
The asset turnover ratio tends to be higher for companies in a sector like consumer staples, which has a relatively small asset base but high sales volume. Conversely, firms in sectors like utilities and telecommunications, which have large asset bases, will have lower asset turnover.
Consider the asset turnover ratio for WalMart Stores, which in the fiscal year ended January 31, 2013, had total revenues of $469 billion. WalMart’s total assets were $193 billion at the beginning of that fiscal year and $203 billion at fiscal yearend, for an average of $198 billion. WalMart’s asset turnover ratio was therefore 2.37 (i.e. $469 billion/ $198 billion).
In contrast, AT&T had total revenues of $127 billion in the fiscal year ended December 31, 2012. Total assets at the beginning and end of the 2012 fiscal year were $270 billion and $272 billion respectively, for an average asset base of $271 billion. AT&T’s asset turnover ratio in 2012 was therefore 0.47 ($127 billion / $271 billion).
It would obviously make little 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, for instance, may provide a clearer picture of asset use efficiency for these telecom companies.
For a specific company, the trend in the asset turnover ratio over a period of time should also be reviewed to check whether asset usage is improving or deteriorating.
VIDEO

Premium to Surplus Ratio
Net premiums written divided by policyholders’ surplus. The premium ... 
Combined Ratio
A measure of profitability used by an insurance company to indicate ... 
Overall Liquidity Ratio
A measurement of a company’s capacity to pay for its liabilities ... 
Capital Loss Coverage Ratio
The difference between an asset’s book value and the amount received ... 
Lapse Ratio
The lapse ratio represents the percentage of policies that were ... 
Quick Liquidity Ratio
The total amount of a company’s quick assets divided by the sum ...

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 >>

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.