Next video:
Loading the player...

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 per dollar of assets.

The formula for the ratio is as follows:

Sales or Revenues ÷ Total Assets

A higher number is preferable, since it suggests that the company is using its assets efficiently to make money. A lower number may convince a company to try other methods to help maximize the efficiency of its assets. Nevertheless, this ratio varies between industries and can only be compared effectively between businesses in the same sector. 

Related Articles
  1. Investing

    Understanding Activity Ratios

    Activity ratios measure how effectively a business uses its assets.
  2. Investing

    Explaining the Fixed-Asset Turnover Ratio

    The fixed-asset turnover ratio measures a company’s ability to generate revenue from its fixed assets.
  3. Investing

    Explaining Working Capital Turnover

    Working capital turnover is a ratio that helps show how efficiently a company is generating revenue per dollar of cash available to spend on operations.
  4. Investing

    Key Financial Ratios for Retail Companies

    Using the following liquidity, profitability and debt ratios, an investor can gather deeper knowledge of a retail company's short-term and long-term outlook.
  5. Investing

    Efficiency Ratio

    There are many types of efficiency ratios, but all measure how well a company utilizes its resources to make a profit. Business managers use these ratios to determine how well they are operating ...
  6. Investing

    Dynamic Current Ratio: What It Is And How To Use It

    Learn why this ratio may be a good alternative to the current, cash and quick ratios.
  7. Investing

    Operating Performance Ratios

    Learn about the fixed-asset turnover, sales/revenue per employee, operating cycle and dividend payout ratio.
  8. Managing Wealth

    Understanding Turnover

    Turnover has a number of different, but related, meanings depending on the context in which it is used. Generally, it means the number of times an item is replaced with a new or similar version ...
  9. Investing

    Calculating Long-Term Debt to Total Assets Ratio

    A company’s long-term debt to total assets ratio shows the percentage of its assets that are financed with long-term debt.
Hot Definitions
  1. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that eventually eliminated tariffs to encourage economic activity between the United ...
  2. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  3. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  4. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  5. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
  6. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
Trading Center