The asset turnover ratio is a number that shows how well a company uses its assets to make money. It tells you how much revenue (sales) a company earns for every rupee it has in assets. A higher ratio means the company is using its assets well to generate sales. This is useful when you want to check how efficient a company is compared to others.

What is Asset Turnover Ratio?

Asset turnover ratio shows how much revenue a company generates from its total assets. The formula is simple: Asset Turnover = Revenue / Total Assets. If a company has a high asset turnover ratio, it means it’s good at using its assets to make sales. If the ratio is low, it may mean the company isn’t using its assets effectively.

Why is Asset Turnover Ratio Important?

This ratio is important in fundamental analysis because it shows how efficiently a company is using its resources. Investors use this ratio to compare companies in the same industry. A company with a higher asset turnover ratio is often seen as better managed and more productive.

What Does a High or Low Ratio Mean?

A high ratio means the company is doing well in turning its assets into sales. It could mean strong management and good use of resources. A low ratio might mean the company is not using its assets properly, or it may have too many unused assets.

How to Use Asset Turnover in Analysis?

When doing fundamental analysis, check the asset turnover ratio along with other financial ratios. It gives you an idea of how well the company is performing. Compare it with other companies in the same sector for a better understanding. A consistent or growing ratio over time is usually a good sign.