#Asset turnover ratio formula full

This may indicate that Company A is experiencing poor sales or that its fixed assets are not being utilized to their full capacity. We can see that Company B operates more efficiently than Company A. It is only appropriate to compare the asset turnover ratio of companies operating in the same industry. For example, it would be incorrect to compare the ratios of Company A to that of Company C, as they operate in different industries. Ratio comparisons across markedly different industries do not provide a good insight into how well a company is doing. The asset turnover ratio for each company is calculated as net sales divided by average total assets. Companies A and B operate in the fast-food industry, while companies C and D operate in the telecommunications industry: Download the Free TemplateĮnter your name and email in the form below and download the free template now!Ĭonsider four hypothetical companies: Company A, Company B, Company C, and Company D. Therefore, for every dollar in total assets, Company A generated $1.5565 in sales. The asset turnover ratio for Company A is calculated as follows: Over the same period, the company generated sales of $325,300 with sales returns of $15,000. Note: an analyst may use either average or end-of-period assets.Ĭompany A reported beginning total assets of $199,500 and ending total assets of $199,203.

Average total assets are the average of aggregate assets at year-end of the current or preceding fiscal year.

Net sales are the amount of revenue generated after deducting sales returns, sales discounts, and sales allowances.

The formula for the asset turnover ratio is as follows:

A company with a high asset turnover ratio operates more efficiently as compared to competitors with a lower ratio. The asset turnover ratio formula is equal to net sales divided by the total or average assets of a company. The asset turnover ratio, also known as the total asset turnover ratio, measures the efficiency with which a company uses its assets to produce sales. Updated FebruWhat is the Asset Turnover Ratio?