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All trading basics

Asset Turnover

Asset turnover = Revenue ÷ Total Assets

Indicates the relationship between assets and revenue.

Things to remember

  • Companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover - indicating pricing strategy.
  • This ratio is more useful for growth companies to check if in fact they are growing revenue in proportion to sales.
Balance Sheet
Balance sheet and consolidated income statement for Cory’s Tequila Co. for 1998 and 1999
Income Statement
Consolidated income statement for Cory’s Tequila Co. for 1998 and 1999

For Cory's Tequila Co.: $12,154 ÷ $14,725 = 0.85

Asset Turnover Analysis:

This ratio is useful to determine the amount of sales that are generated from each dollar of assets. As noted above, companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover. Cory's Tequila Co.'s asset turnover seems to be relatively low, meaning that it makes a high profit margin on its products. For companies in the retail industry you would expect a very high turnover ratio - mainly because of cutthroat and competitive pricing.