Financial Encyclopedia
Asset Turnover
Definition
The asset turnover ratio measures the efficiency with which a company uses its assets to produce revenue.
Example
The data from balance sheet and income statement is used to calculate asset turnover for PJSC Tatneft.
Asset Turnover (2017) = 581 536 880 / (208 034 376 + 360 747 099) / 2 = 2,04
Asset Turnover (2018) = 793 237 174 / (360 747 099 + 439 362 594) / 2 = 1,98
Asset Turnover (2019) = 827 026 695 / (439 362 594 + 420 770 797) / 2 = 1,92
As can be seen from the calculations, there is a downward trend, which may indicate an inefficient use of assets.
More detailed
The asset turnover is equal to net sales divided by the total or average assets of a company.
Asset turnover = Total sales / (Beginning assets + Ending Assets) / 2
There is no specific standard for turnover indicators, since it depends on the industry characteristics of the company. In capital-intensive industries, asset turnover is lower than in services/trade.
A company with a high asset turnover ratio operates more efficiently as compared to competitors with a lower ratio.
According to Ranks methodology, this indicator is analyzed in the Financial position and Growth blocks and used along with other indicators to calculate the score.
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