The asset turnover ratio is both a performance measure and an efficiency measure. It tells the ratio analyst how well a business is deploying its assets to generate sales revenue.
It is known as an efficiency measure because in an ideal case a business would like to generate the highest level of sales revenue from the minimum amount of assets. As a result, it's very efficient when the Asset Turnover is higher than opposed to being lower. A business wants a high Asset Turnover.
A higher ratio result can also be viewed as better because some particular assets are costly to deploy, maintain and replace. That is, the larger or more consequential any asset deployment project is, the more you would want sales revenue to increase (pushing up the numerator and making the ratio higher).
The Asset Turnover can also be viewed as a performance measure because sales revenue (a key input) is regarded are one of the most important performance indicators from the income statement (a performance statement itself). The 'top-line' probably only takes second billing to the 'bottom-line'.
If you calculate this result to be 8.3 then this would mean the business has generated $8.30 worth of sales revenue per dollar of assets. Or that sales revenue is 8.3 times average assets over the period.
Asset Turnover Formula
Sales Revenue / ((Assets at Start of Period + Assets at End of Period) / 2)
Asset Turnover Calculator
The calculator asks for:
Sales Revenue, which is found in the income statement.
Assets at the Start of Period, which is found on the previous balance sheet.
Assets at the End of Period, which is found on the current balance sheet.
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