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Asset Turnover Ratio

Understanding the Asset Turnover Ratio: Measuring Asset Efficiency

The Asset Turnover Ratio is a financial metric that measures the efficiency of a company in using its assets to generate sales. It indicates how well a company is utilising its assets to produce revenue. A higher ratio signifies better performance and efficient asset utilisation.

Asset Turnover Ratio = Net Sales​ / Average Total Assets


Suppose Company JKL has the following financial details:


  • Net Sales: $1,000,000

  • Beginning Total Assets: $600,000

  • Ending Total Assets: $800,000


To calculate the Asset Turnover Ratio:


  1. Calculate the average total assets: (600,000+800,000)/2=700,000

  2. Divide net sales by average total assets: 1,000,000/700,000=1.43

An Asset Turnover Ratio of 1.43 indicates that Company JKL generates $1.43 in sales for every dollar of assets. This suggests efficient use of assets to generate revenue.

Efficiency Ratio

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