Asset Turnover Calculator

What is Asset Turnover?

Asset Turnover is a financial ratio that measures how efficiently a company uses its assets to generate sales revenue. It indicates how many dollars of revenue are generated for each dollar invested in assets. A higher asset turnover ratio suggests more efficient use of assets in generating revenue.

The Asset Turnover Formula

The formula for calculating Asset Turnover is:

\[\text{Asset Turnover Ratio} = \frac{\text{Net Sales Revenue}}{\text{Average Total Assets}}\]

Where:

• Net Sales Revenue = Total revenue minus returns, allowances, and discounts
• Average Total Assets = (Beginning Total Assets + Ending Total Assets) ÷ 2

Step-by-Step Asset Turnover Calculation

1. Determine the Net Sales Revenue for the period (usually a fiscal year).
2. Calculate the Average Total Assets:
   • Add the total assets at the beginning of the period to the total assets at the end of the period.
   • Divide the sum by 2 to get the average.
3. Divide the Net Sales Revenue by the Average Total Assets.
4. The result is the Asset Turnover Ratio.

Example Calculation

Let's calculate the Asset Turnover for a company with Net Sales Revenue of $500,000 and Average Total Assets of $250,000:

1. Net Sales Revenue = $500,000
2. Average Total Assets = $250,000
3. Asset Turnover Ratio = $500,000 ÷ $250,000 = 2

Visual Representation

In this example, the Asset Turnover Ratio of 2 means that for every dollar invested in assets, the company generates $2 in sales revenue. The green bar represents the ratio, with a full bar indicating a ratio of 2 or higher, which is generally considered good.