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What is asset turnover ratio?
Asset turnover ratio is an efficiency data point that represents an organization's inherent ability to generate profits from its assets. Asset turnover ratio is a measurement of the value of a company's sales or profits relative to the value of the company's assets.
When an organization has a high asset turnover ratio it means the company is highly efficient at generating profit from its assets. On the other hand, if a company has a low asset turnover ratio, it means that it is not optimally utilizing its assets to generate sales or increase revenue.
To get an asset turnover ratio you must divide a company's total sales by the sum of its beginning and ending assets, and then divide that number by two.
Here is the formula for asset turnover ratio:
Total Sales / Beginning Assets + Ending Assets / 2
Total Sales = Annual sales total of a company
Beginning Assets = A company's assets at the start of a fiscal year
Ending Assets = A company's assets at the end of a fiscal year
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