Asset turnover
Asset turnover measures how much sales a company generates from each rupee of assets: plant, machinery, computers, land.
Formula
Asset turnover
Asset Turnover = Sales ÷ Total Assets
Benchmark: Higher is always better; a fall needs a cause
Reading the number
Two people each buy a ₹100 machine. One produces and sells ₹500 of goods, the other only ₹100. The first runs the better business. That is asset turnover.
Think of a taxi. The car is the asset; the more rides it runs in a day, the better the turnover. Ola and Uber essentially promise car owners "we will raise your asset turnover" by delivering customers at the press of a button instead of through phone calls and referrals.
When asset turnover falls, there are two possible causes and you must tell them apart. Either the company is genuinely struggling to sell and volumes are falling, or it has just added a large new plant and sales have not yet caught up, which is temporary. To check, look at one year sales growth in the ratios section. Falling sales confirm the first cause.
Indian example
Related ratios
Glossary terms
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