Asset turnover

Asset turnover is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue or sales income to the company.^[1]

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.

${\mbox{Asset Turnover}}={\frac {{\mbox{Net Sales Revenue}}}{{\mbox{Average Total Assets}}}}$

"Sales" is the value of "Net Sales" or "Sales" from the company's income statement
"Average Total Assets" is the average of the values of "Total assets" from the company's balance sheet 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

↑ Bodie, Zane; Alex Kane; Alan J. Marcus (2004). Essentials of Investments, 5th ed. McGraw-Hill Irwin. p. 459. ISBN 0-07-251077-3.

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[1] Bodie, Zane; Alex Kane; Alan J. Marcus (2004). Essentials of Investments, 5th ed. McGraw-Hill Irwin. p. 459. ISBN 0-07-251077-3.