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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.
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