Asset Turnover Ratio Formula
Asset Turnover Ratio =
Net Sales / Total Assets
What Does Asset Turnover Ratio Mean?
Asset Turnover Ratio is used to determine how efficient a company is with using its assets to generate revenue. In this ratio, the higher the number the better the company is doing. Additionally, this ratio is a measure of a company's pricing strategy. If a company has a high turnover ratio, it can be an indication of a low profit margin, while a low turnover is an indication of a high profit margin. This is somewhat intuitive as a low profit margin means the price of their products is low, fostering a higher velocity (their goods will sell faster). A high profit margin means they price things a bit higher, which affects their velocity (it will sell slower).