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Asset Turnover Ratio
How efficiently a company uses all its assets to generate revenue, measuring overall asset productivity.
Formula
Asset Turnover = Net Revenue / Average Total Assets
Average Total Assets = (Beginning Assets + Ending Assets) / 2
Definition
What is Asset Turnover?
Asset turnover shows how effectively a business converts its total asset base into revenue. It's a measure of operational efficiency that combines all asset utilization into one metric.
Interpreting Asset Turnover
Higher ratios indicate more efficient asset use. Retail and service businesses typically show higher turnover than capital-intensive industries. Compare against industry peers for context.
DuPont Analysis
Asset turnover is one component of the DuPont formula: ROE = Profit Margin x Asset Turnover x Financial Leverage. Improving any component boosts ROE.
Example
SaaS company annual metrics:
- Revenue: $3,000,000
- Beginning Assets: $1,500,000
- Ending Assets: $2,000,000
Average Assets = ($1.5M + $2M) / 2 = $1,750,000
Asset Turnover = $3M / $1.75M = 1.71x
Each dollar of assets generates $1.71 in revenue.
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