# Asset Turnover Ratio Definition By [awepp](https://paragraph.com/@awepp) · 2023-01-01 --- What Is the Asset Turnover Ratio? --------------------------------- The asset turnover ratio measures the value of a company's sales or [revenues](https://www.investopedia.com/terms/r/revenue.asp) relative to the value of its [assets](https://www.investopedia.com/terms/a/asset.asp). 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 Formula and Calculation of the Asset Turnover Ratio --------------------------------------------------- Below are the steps as well as the formula for calculating the asset turnover ratio. \\begin{aligned} &\\text{Asset Turnover} = \\frac{ \\text{Total Sales} }{ \\frac { \\text{Beginning Assets}\\ +\\ \\text{Ending Assets} }{ 2 } } \\\\ &\\textbf{where:}\\\\ &\\text{Total Sales} = \\text{Annual sales total} \\\\ &\\text{Beginning Assets} = \\text{Assets at start of year} \\\\ &\\text{Ending Assets} = \\text{Assets at end of year} \\\\ \\end{aligned}​Asset Turnover=2Beginning Assets + Ending Assets​Total Sales​where:Total Sales=Annual sales totalBeginning Assets=Assets at start of yearEnding Assets=Assets at end of year​ The asset turnover ratio uses the value of a company's assets in the denominator of the formula. To determine the value of a company's assets, the average value of the assets for the year needs to first be calculated. 1. Locate the value of the company's assets on the balance sheet as of the start of the year. 2. Locate the ending balance or value of the company's assets at the end of the year. 3. Add the beginning asset value to the ending value and divide the sum by two, which will provide an average value of the assets for the year. 4. Locate total sales—it could be listed as revenue—on the income statement. 5. Divide total sales or revenue by the average value of the assets for the year. What the Asset Turnover Ratio Can Tell You ------------------------------------------ Typically, the asset turnover ratio is calculated on an annual basis. The higher the asset turnover ratio, the better the company is performing, since higher ratios imply that the company is generating more revenue per dollar of assets. The asset turnover ratio tends to be higher for companies in certain sectors than in others. Retail and consumer staples, for example, have relatively small asset bases but have high sales volume—thus, they have the highest average asset turnover ratio. Conversely, firms in sectors such as [utilities](https://www.investopedia.com/terms/u/utilities_sector.asp) and [real estate](https://www.investopedia.com/terms/r/realestate.asp) have large asset bases and low asset turnover. Since this ratio can vary widely from one industry to the next, comparing the asset turnover ratios of a retail company and a telecommunications company would not be very productive. Comparisons are only meaningful when they are made for different companies within the same sector. Example of How to Use the Asset Turnover Ratio ---------------------------------------------- Let's calculate the asset turnover ratio for four companies in the retail and telecommunication-utilities sectors for FY 2020—Walmart Inc. ([WMT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=wmt)), Target Corporation ([TGT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=tgt)), AT&T Inc. ([T](https://www.investopedia.com/markets/quote?tvwidgetsymbol=t)), and Verizon Communications Inc. ([VZ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=vz)) --- *Originally published on [awepp](https://paragraph.com/@awepp/asset-turnover-ratio-definition)*