Assets Turnover Ratio

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on March 02, 2023

Asset Turnover Ratio: Definition

The asset turnover ratio reflects the relationship between the value of the total assets held by a company and the value of its annual sales (i.e., turnover).

This ratio may seem unnatural, but it is helpful when assessing how efficiently the assets of a business are being used. After all, the main reason for holding an asset is to help the company achieve a certain level of sales.

An efficient company can deliver on its desired level of sales with a reasonable investment in assets.

By contrast, to achieve the same volume of business, a less efficient company will make a greater investment in assets (thereby incurring larger financial costs and, hence, recording a lower return on investment).

Industry averages provide a good indication of a reasonable total asset turnover ratio.

Formula For Asset Turnover Ratio

To calculate the asset turnover ratio, use the following formula:

Asset Turnover Ratio Formula


Consider the following data taken from John Trading Concern:

  • Total assets at the beginning of the year 2019: $2,450,000
  • Total assets at the end of the year 2019: $2,350,000
  • Net sales made during the year 2019: $4,800,000

Required: Calculate and interpret the total asset turnover ratio of John Trading Concern for the year 2019.


Total asset turnover ratio = Sales/Average total assets

= $4,800,000/$2,400,000* = 2

* ($2,450,000 + $2,350,000)/2

The asset turnover ratio is 2. This means that every dollar invested in assets generates $2 in sales. Remember to compare this figure with the industry average to see how efficient the organization really is in using its total assets.

Assets Turnover Ratio FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.