What Is the Asset Turnover Ratio?
The asset turnover ratio measures how efficiently a company uses its assets to generate sales. In plain terms: for every rupee of assets the company owns, how many rupees of revenue does it produce?
The formula
Asset turnover = revenue ÷ total assets. A ratio of 2 means the company generates ₹2 of sales for every ₹1 of assets — it's working its assets hard. A ratio of 0.5 means it takes ₹2 of assets to produce ₹1 of sales — far more asset-heavy.
What it reveals
High asset turnover signals an efficient, asset-light business (think a lean retailer or a services firm). Low turnover is typical of capital-heavy industries (power plants, steel, telecom) that need huge assets to operate. Neither is "good" or "bad" in isolation — it's about the business model.
Why it's one piece of the puzzle
Asset turnover is one of the three drivers in DuPont analysis of ROE: a company can earn good returns either through fat margins or through high turnover (or both). Compare it against sector peers using the financials.