What does asset turnover measure?

Asset turnover measures the efficiency of a company's use of its assets to generate sales revenue. It is calculated by dividing total sales revenue by the average total assets for the period. This ratio provides insight into how well a company is utilizing its assets to produce revenue. A higher asset turnover indicates that the company is using its assets more efficiently, meaning it generates more sales per dollar of assets.

This metric is particularly useful for comparing companies within the same industry, as it reflects operational efficiency and helps stakeholders assess management's effectiveness in using assets to drive sales. Understanding asset turnover is crucial for evaluating a company's performance and financial health, as it ties directly into the foundational goals of maximizing revenue generation relative to the resources employed.