Asset turnover is net sales divided by total assets.
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Divide net sales by total assets. A company with $800,000 in net sales and $400,000 in total assets has an asset turnover ratio of 2.0x, meaning it generates $2 of revenue for every $1 tied up in assets. Some analysts use average total assets, the average of the beginning and ending balance for the period, to smooth out swings from a single point-in-time snapshot; this calculator uses a single total assets figure to keep the input simple.
Asset turnover varies enormously by industry, so it is far more useful compared against a company's own history, or against direct competitors, than against a single universal benchmark. Retailers and service businesses with light asset bases typically post high turnover, while capital-intensive industries like utilities and manufacturing post lower turnover by nature, not necessarily by inefficiency.
Asset turnover is one of the three components in the DuPont breakdown of return on equity, alongside net profit margin and the equity multiplier (financial leverage). Multiplying all three together reconstructs ROE, and looking at them separately shows where a company's equity return is actually coming from.
A company can lift its ROE by improving any one of the three: earning a fatter margin on each sale, turning over its assets faster, or taking on more financial leverage. Asset turnover isolates the operational-efficiency piece of that equation, separate from pricing power and separate from balance sheet structure.
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