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What Is Asset Turnover Ratio?

what is asset turnover ratio

Definition of Asset Turnover Ratio

  • The asset turnover ratio is used to measure the efficiency of a company.
  • The higher the ratio, the more efficient the company is. 
  • The asset turnover ratio looks at how efficiently a company uses its assets to produce sales.

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What is the Formula for Asset Turnover Ratio?

  • The asset turnover ratio can be calculated by dividing the revenue by the average total assets.

Revenue ÷ Average Total Assets

  • The average total assets can be calculated by adding the beginning and ending total assets and dividing them by 2.

Asset Turnover Ratio in Practice 

  • Alex sells TV’s and creates a revenue of $500,000. His total assets at the beginning of the period are worth $300,000 and are worth $290,000 at the end of the period. What is the asset turnover ratio?
  • 500,000 ÷ [(300,000 + 290,000) ÷ 2] = $1.70
  • Therefore, for every dollar Alex’s company has in assets, the company generated $1.70 in sales.

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