Asset turnover

A ratio compares two figures to reveal something neither number shows on its own. Asset turnover compares how much revenue a company generates against everything it owns, showing how productively its assets are being used.

Asset turnover divides revenue by total assets. It shows how many dollars of revenue are produced for every dollar of assets on the balance sheet.

The formula is:

A higher asset turnover means a company is generating more revenue from each dollar of assets it holds, generally a sign of efficient asset use. What counts as high or low depends heavily on the type of business. Retailers, distributors, and other businesses built around physical inventory and equipment typically post high asset turnover, since they need relatively few assets to generate a given amount of sales. Software companies often post low asset turnover despite being highly profitable, since their balance sheets tend to carry large cash and investment balances, along with goodwill and intangible assets from past acquisitions.

Because of that industry variation, asset turnover is rarely meaningful on its own. It is best compared against close industry peers, or tracked over time for the same company, rather than judged against a single universal benchmark.