Asset Turnover Ratio

What is Asset Turnover Ratio?

Asset Turnover Ratio measures how many dollars of revenue you generate for every dollar of assets you own. It reveals how effectively you deploy capital to create sales.

Why Asset Turnover Matters

For asset-light SaaS companies, this ratio is typically very high. You generate millions in revenue from laptops, servers, and intellectual property. This is a structural advantage of the software business model.

For ecommerce founders with significant inventory, warehouse equipment, and physical infrastructure, asset turnover is a critical efficiency metric. Low turnover means your capital is trapped in assets that are not pulling their weight.

Interpreting the Ratio

Higher is generally better, but context matters. A ratio of 2.0 means every dollar of assets generates $2 in revenue. Asset-intensive businesses naturally have lower ratios than asset-light businesses.

Your ecommerce company has:

• Annual Revenue: $3,000,000
• Average Total Assets: $1,500,000

Asset Turnover Ratio = $3,000,000 ÷ $1,500,000 = 2.0

Every dollar of assets generates $2 in sales. If you invest $500K in new warehouse equipment, you should expect at least $1M in additional annual revenue to maintain this efficiency.