Asset Turnover

Calculation

Asset turnover is calculated by dividing net sales (income statement) by average total assets (balance sheet).

Interpretation

Asset turnover is a profitability ratio that describes a company’s efficiency at converting average total assets during a reporting period into sales.

The higher the inventory turnover, the more efficient the company is at utilizing its assets to generate sales.

This is especially important for retailers such as Costco, who run on low net margins. Despite low margins, Costco is able to achieve high returns on equity (ROE) through high inventory turnover (see DuPont analysis).