Asset Turnover Ratio

by Craig Anthony

1 min read

The asset turnover ratio is a financial metric you can use to see how well your company is using its resources to make money. It is calculated by dividing your total sales by total assets. If you had $150,000 in total revenue last year with an average total asset balance of $50,000, your asset turnover ratio would be 3. This also means for every $1 of assets you own, you make $3 of revenue. You can use your asset turnover rate to understand how well you are using your assets to make money. If you have a high asset turnover, you are deploying your assets well and efficiently using what you own to run your business. Low asset turnover measurements may be because of slow sales. It may also mean you have a lot of assets and not enough of a market share to reach. Your asset turnover ratio is most useful when compared to other asset turnover ratios. You can compare your calculation from one period to the next to see in what direction your company is going. You can also compare your asset turnover to competitors to see how your business stacks up against other businesses. Finally, you can use benchmarking data provided by the Government of Canada to understand more about your performance. Any way you use it, the asset turnover ratio is a helpful method for checking your company’s efficiency. Compare your total revenue to total assets to see how well you are using your resources.

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