Asset Turnover Ratio Calculator
What Is the Asset Turnover Ratio?
The asset turnover ratio measures how efficiently a business uses its assets to generate revenue. It tells you how many dollars of revenue the business produces for every dollar of assets on its balance sheet. A higher ratio means the business is getting more revenue out of what it owns. A lower ratio means assets are underutilized or the business is carrying more assets than its revenue level justifies.
For asset-heavy businesses like contractors, manufacturers, and distributors, this ratio is a useful indicator of operational efficiency. A business that generates $3.00 of revenue for every $1.00 of assets is working its asset base harder than one that generates $1.50.
The Formula
Asset Turnover Ratio = Revenue / Average Total Assets
Definitions
Revenue is the total amount billed to customers for the period.
Average total assets is the average of beginning and ending total assets for the period. Using the average rather than a single point-in-time figure smooths out the effect of significant asset purchases or disposals during the year.
A Worked Example
A concrete subcontractor has the following financials:
Annual revenue: $6,200,000
Total assets at beginning of year: $2,800,000
Total assets at end of year: $3,100,000
Average total assets: $2,950,000
Asset Turnover Ratio = $6,200,000 / $2,950,000 = 2.10
For every dollar of assets, this contractor generates $2.10 in revenue.
What Is a Good Asset Turnover Ratio?
Benchmarks vary significantly by industry. Retail businesses typically run high asset turnover ratios because they generate large revenue relative to their asset base. Capital-intensive businesses like manufacturers and contractors run lower ratios because they require significant equipment and infrastructure. A ratio above 1.0 means the business generates more revenue than its total asset base, which is generally healthy. Track your ratio over time and compare it to industry peers rather than applying a universal standard.
Asset Turnover and Return on Assets
Asset turnover and return on assets are related. ROA equals net profit margin multiplied by asset turnover. A business can improve its ROA either by increasing its profit margin or by turning its assets faster. For low-margin businesses like contractors and distributors, improving asset turnover is often a more realistic path to better ROA than trying to significantly expand margins.