What is the Asset Turnover Ratio?

The Asset Turnover Ratio is a financial efficiency metric that measures how effectively a company uses its assets to generate revenue. A higher ratio indicates better utilization of assets.

How It’s Calculated

Asset Turnover Ratio = Net Sales ÷ Average Total Assets

Example

A business with $2,000,000 in annual sales and $1,000,000 in average assets has an asset turnover ratio of 2.0 — meaning it generates $2 in sales for every $1 in assets.

Why It Matters

• Assesses operational efficiency.

• Useful for comparing companies within the same industry.

• Helps identify overinvestment in assets or underperformance.