The asset turnover ratio measures the sales generated per rupee of assets and is an indication of how efficient the company is in utilizing assets to generate sales. Asset-intensive companies such as mining, manufacturing, and so on will generally have lower asset turnover ratios compared to companies that have fewer assets, such as consulting and service companies. The ratio number shall be compared to the industry average for companies in the same industry.
Formula for Asset turnover Ratio
\(Asset\,turnover = \frac{{Sales}}{{Assests}}\)
Example
Ajay Company has sales in the amount of Rs.210,000 and total assets in the amount of Rs.132,000. This gives an asset turnover ratio of 1.59.
This means that for every rupee invested in assets, the company generates Rs1.59 of sales.