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Assets Turnover Ratio
A printable cheatsheet with calculations
and notes
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Assets Turnover Ratio
Assets Turnover Ratio =
Net Sales
Average Total Asset
INTERPRETATION
The assets turnover ratio measures how effectively a company uses its assets to generate sales.
Business owners and managers use this ratio to see how their company stacks up against its competitors, the rest of the industry, or its past performance.
Note: expanded calculation
Subtract returns and refunds from the sales revenue and then divide it by the calculated average total assets, which is adding the beginning and ending total asset balances together and dividing by two.
= (Sales Revenue – Returns – Refunds)/ ((Assets Beginning Balance + Assets Ending Balance) /2)
EXAMPLE
M&M Company reported
Beginning Assets: $50,000
Ending Assets: $100,000
Net Sales: $25,000
Total asset turnover = $25,000 / ($50,000 + $100,000)/ 2 = .33
This means that for every dollar in assets, M&M only generates 33 cents. In other words, they could be more efficient with their use of assets.
BENCHMARK: HA, PG, EB, ROT
A “good” asset turnover ratio varies by industry.
Generally, if the ratio is greater than 1, it’s considered good because for every dollar in assets, the company generates one dollar, i.e., enough revenue for itself.
A higher ratio is preferable as it implies that the company is using its assets well.
Assets Turnover Ratio :
ABBREVIATION KEY:
ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark
DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.