Asset turnover (ATO), total asset turnover, or asset turns is a
financial ratio
A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financia ...
that measures the efficiency of a company's use of its
asset
In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that c ...
s in generating sales revenue or sales income to the company. Asset turnover is considered to be an Activity Ratio, which is a group of financial ratios that measure how efficiently a company uses assets. Asset turnover can be further sub-divided into
fixed asset turnover, which measures a company's use of its fixed assets to generate revenue, and
working capital
Working capital (WC) is a financial metric which represents operating liquidity available to a business, organisation, or other entity, including governmental entities. Along with fixed assets such as plant and equipment, working capital is consi ...
turnover, which measures a company's use of its current assets minus liabilities to generate revenue. Total asset turnover ratios can be used to calculate
Return On Equity (ROE) figures as part of
DuPont analysis. As a financial and activity ratio, and as part of DuPont analysis, asset turnover is a part of company
fundamental analysis.
Companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. Companies in the retail industry tend to have a very high turnover ratio due mainly to cutthroat and competitive pricing.
:
* "Sales" is the value of "Net Sales" or "Sales" from the company's
income statement
An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''stateme ...
* "Average Total Assets" is the average of the values of "Total assets" from the company's
balance sheet
In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...
in the beginning and the end of the fiscal period. It is calculated by adding up the assets at the beginning of the period and the assets at the end of the period, then dividing that number by two. This method can produce unreliable results for businesses that experience significant intra-year fluctuations. For such businesses it is advisable to use some other formula for Average Total Assets.
* Alternatively, "Average Total Assets" can be ending total assets.
References
Financial ratios
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