A measure of efficiency, this figure represents how many dollars in revenue a company has generated per each dollar of assets. It is calculated by dividing total revenues for the period by total assets for the same period.
Benefit
Asset turnover can give an indication of how efficient a company is. A high asset turnover, which expresses how many times a company sells—or turns over—its assets in a year is a sign of high efficiency.
Origin
The company's revenues are found in the annual income statement. The company's total assets are found in the annual balance sheet.
For the Pros
Asset turnover is one of the three ratios used in the calculation of return on equity (ROE), which is a measure of a company’s profitability. Net margin (earnings/revenues) and financial leverage (assets/equity) are the other two. Multiplying the three ratios together produces ROE, and raising any one of the three ratios will increase ROE.
Net margin and asset turnover are measures of how efficient a company’s operations are, while financial leverage is a measure of how much debt the company carries.