Asset turnover ratio,
Definition of Asset turnover ratio:
Indicates how successful a firm is in utilizing its assets in generation of sales revenue. A high ratio is considered desirable, but what is considered high in one industry may be low for another. Asset turnover ratios are computed for specific assets, such as cash to sales (cash ÷ sales revenue), inventory to sales (value of inventory ÷ sales revenue), fixed assets to sales (fixed assets ÷ sales revenue). When computed as total assets-to-sales ratio (total assets ÷ sales revenue), it is called capital intensity.
The asset turnover ratio measures the value of a company's sales or revenues relative to the value of its assets. The asset turnover ratio can be used as an indicator of the efficiency with which a company is using its assets to generate revenue.
The higher the asset turnover ratio, the more efficient a company is at generating revenue from its assets. Conversely, if a company has a low asset turnover ratio, it indicates it is not efficiently using its assets to generate sales.
How to use Asset turnover ratio in a sentence?
- The asset turnover ratio of selling bottled water was greatly superior to the asset turnover ratio involved in selling GPS devices since so much money needed to be allocated to research and development.
- This metric helps investors understand how effectively companies are using their assets to generate sales.
- Asset turnover is the ratio of total sales or revenue to average assets.
- You need to understand the best way to use an asset turnover ratio to the long term advantage of your business.
- A company's asset turnover ratio can be impacted by large asset sales as well as significant asset purchases in a given year.
- Investors use the asset turnover ratio to compare similar companies in the same sector or group.
- We had a very successful asset turnover ratio and that gave us a lot of confidence for what we were doing in the future.
Meaning of Asset turnover ratio & Asset turnover ratio Definition