# VMC: What Is Asset Turnover Ratio?

The post was originally published here.

## Definition of Asset Turnover Ratio

• The asset turnover ratio is used to measure the efficiency of a company.
• The higher the ratio, the more efficient the company is.
• The asset turnover ratio looks at how efficiently a company uses its assets to produce sales.

## What is the Formula for Asset Turnover Ratio?

• The asset turnover ratio can be calculated by dividing the revenue by the average total assets.

Revenue ÷ Average Total Assets

• The average total assets can be calculated by adding the beginning and ending total assets and dividing them by 2.

## Asset Turnover Ratio in Practice

• Alex sells TV’s and creates a revenue of \$500,000. His total assets at the beginning of the period are worth \$300,000 and are worth \$290,000 at the end of the period. What is the asset turnover ratio?
• 500,000 ÷ ((300,000 + 290,000) ÷ 2) = \$1.70
• Therefore, for every dollar Alex’s company has in assets, the company generated \$1.70 in sales.

### Join the Bootcamp for Valuation!

The Valuation Master Class is the complete, proven, step-by-step course to guide you from novice to valuation expert.

Save with coupon code: get-smarter