Asset Turnover Ratio

The asset turnover ratio analyzes the productivity of a company’s assets. It tells us how many dollars of sales a company generates for each dollar invested in assets. This ratio is computed by dividing net sales by average total assets for the period.

         Net sales÷average assets = Asset turnover ratio

Asset turnover measures how efficiently a company uses its assets to generate sales. Unless seasonal factors are significant, we can use the beginning and ending balance of total assets to determine average total assets.