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Asset Turnover

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Asset turnover is an efficiency ratio used in financial analysis that shows the sales or revenue volume produced for ever dollar of assets owned. Asset turnover is sales divided by assets, and asset turnover is correctly expressed both as a percentage or as x times. For example, if Tractorco has $40 million of assets and $100 million of sales then its asset turnover is 250% or 2.5x. If Tractorco grows to $280 million of sales with the same assets, its asset turnover is 700% or 7.0x and its efficiency in use of assets has increased by 180%. Asset turnover ratios vary considerably by industry, and high asset turnover may indicate a type of business with low margins. An important investment efficiency and fundamental analysis measure, asset turnover is one way to analyze if a growth company's supporting asset base is keeping pace with its sales. Asset turnover is often applied in alongside inventory turnover and days-to-sales ratios to provide more strategy information about productive efficiency.



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