finance Finance refers to monetary resources and to the study and Academic discipline, discipline of money, currency, assets and Liability (financial accounting), liabilities. As a subject of study, is a field of Business administration, Business Admin ...

, asset turnover (ATO), total asset turnover, or asset turns is a

financial ratio A financial ratio or accounting ratio states the 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 fin ...

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 can b ...

s in generating

sales revenue In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of a business. Commercial revenue may also be referred to as sales or as turnover. Some companies receive revenue ...

or sales income to the company. Asset turnover is considered to be a ''

profitability In economics, profit is the difference between revenue that an economic entity has received from its outputs and total costs of its inputs, also known as surplus value. It is equal to total revenue minus total cost, including both Explicit co ...

ratio'', which is a group of financial ratios that measure how efficiently a company uses assets. Asset turnover can be furthered subdivided into fixed asset turnover, which measures a company's use of its

fixed asset Fixed assets (also known as long-lived assets or property, plant and equipment; PP&E) is a term used in accounting for assets and property that may not easily be converted into cash. They are contrasted with current assets, such as cash, bank ac ...

s to generate revenue, and working capital turnover, which measures a company's use of its

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 ...

(current assets minus liabilities) to generate revenue. Total asset turnover ratios can be used to calculate

return on equity The return on equity (ROE) is a measure of the profitability of a business in relation to its equity; where: : Jason Fernando (2023)"Return on Equity (ROE) Calculation and What It Means" Investopedia Thus, ROE is equal to a fiscal year's net in ...

(ROE) figures as part of

DuPont analysis DuPont analysis (also known as the DuPont identity, DuPont equation, DuPont framework, DuPont model, DuPont method or DuPont system) is a tool used in financial analysis, where return on equity (ROE) is separated into its component parts. Useful ...

. As a financial and activity ratio, and as part of DuPont analysis, asset turnover is a part of company

fundamental analysis Fundamental analysis, in accounting and finance, is the analysis of a business's financial statements (usually to analyze the business's assets, Liability (financial accounting), liabilities, and earnings); health; Competition, competitors and Ma ...

. Companies with low

profit margin Profit margin is a financial ratio that measures the percentage of profit earned by a company in relation to its revenue. Expressed as a percentage, it indicates how much profit the company makes for every dollar of revenue generated. Profit margi ...

s 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.

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* "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'', ''statement o ...

* "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 {{econ-stub