Total Asset Turnover Calculator

What this total asset turnover calculator does

Every business owns things in order to sell things. Total asset turnover asks how much selling each unit of owning produces.

Divide revenue by total assets and you get a number like 1.67, which means the business generated 1.67 of sales for every 1 of assets on its balance sheet during the year. Give this calculator net sales and total assets and it returns that figure.

It is the plainest efficiency ratio there is, and on its own it is almost meaningless because a supermarket and a power station are supposed to be twenty times apart. Where it becomes genuinely useful is as one half of an explanation, which the DuPont section covers.

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How to use it

1. Net Sales. Revenue for the period, after returns, allowances and discounts. Use the top line of the income statement.
2. Total Assets. The balance sheet total, everything the business owns.

Press Calculate. Press Reset to clear it.

One methodological note that matters more here than in most ratios. Sales are a figure for a whole period; total assets are a snapshot on one day. Mixing a flow with a stock is slightly inconsistent, and the usual correction is to use the average of opening and closing total assets rather than the closing figure.

For a stable business the difference is small. For one that grew twenty percent during the year, or made an acquisition, it is not, and using the closing balance sheet will understate turnover. To use an average here, add opening and closing total assets, divide by two, and enter that.

The formula

Total asset turnover = net sales ÷ total assets

The result is expressed as a multiple rather than a percentage, and read as "times". A turnover of 1.67 means the asset base was converted into sales 1.67 times over.

Another way to read it that some people find more intuitive: turn it upside down. A turnover of 1.67 means the business needs 0.60 of assets to produce 1 of sales. That version is useful when planning, because it tells you roughly what a revenue target will cost you in balance sheet.

Higher is generally better, in the narrow sense that producing the same sales from fewer assets means less capital tied up. But higher is not always achievable, and a low figure is often a fact about the industry rather than a criticism of the management.

A worked example

A business with 2,000,000 of net sales and 1,200,000 of total assets.

2,000,000 ÷ 1,200,000 = 1.67

Every 1 of assets produced 1.67 of sales during the year. Or inverted, the business needed 60 of assets for every 100 of revenue.

Two more for contrast:

The last row looks disastrous by the standards of the second. It is roughly what a property company or an infrastructure business looks like, and there is nothing wrong with it. Which brings us to the next section.

Turnover varies twenty fold by business shape

Take the same 2,000,000 of sales and put it through four different kinds of business:

Twenty times, top to bottom, on identical revenue. The grocer holds a few weeks of stock and some fittings. The utility owns generating plant and a distribution network that took decades to build.

So the first rule of this ratio is that a cross-industry comparison tells you what industry you are looking at and nothing else. The second rule follows from it: businesses at the low end of the table make their money on margin, and businesses at the high end make it on volume, because neither can do both.

What turnover does tell you within an industry is real. A retailer at 4x against competitors at 6x is carrying more inventory, or has more space per unit of sales, or is sitting on assets that are not earning. That is a specific and actionable observation, which the same figure compared against a software company is not.

Damodaran at NYU Stern publishes asset turnover alongside margins and returns on capital by sector, updated each January and free, which is the practical place to find your own industry's figure.

Where this fits: the DuPont breakdown

Asset turnover on its own is half a story. Its real job is as one of three components that together explain return on equity.

ROE = net margin × asset turnover × equity multiplier

It works because everything cancels: (net income ÷ sales) × (sales ÷ assets) × (assets ÷ equity) = net income ÷ equity.

Which means any company's return to shareholders comes from exactly three places. How profitable each sale is. How hard the assets work. And how much of the asset base is funded with borrowed money rather than owners' money.

The grocer earns a respectable 20 percent on equity from a two percent margin, by turning assets over four times and using a fair amount of debt. The software company earns more from margin alone with almost no leverage. Same headline metric, three different machines producing it.

This is why the breakdown matters more than the number. If a company's ROE is rising, DuPont tells you whether it is because the business got more profitable, more efficient, or simply more indebted. The third is not the same achievement as the first two, and looking only at ROE cannot tell them apart.

Our return on sales calculator covers the margin component. For the version of this decomposition built on operating profit and capital employed rather than net profit and equity, see the ROCE calculator.

Reading the number

There is no universal good figure, so the useful comparisons are these three.

Against your own history. Falling turnover means the asset base is growing faster than sales. That can be an investment about to pay off, or it can be capital quietly accumulating in inventory, receivables and equipment that is not earning. Distinguishing between those two is one of the more useful things a finance team does.

Against direct competitors. Calculate theirs the same way from published accounts. A persistent gap in either direction is worth understanding.

Against the margin. These two move in opposite directions across the economy, and a business that has both is unusual and probably has something protecting it. If your turnover is falling and your margin is not rising to compensate, the return on capital is going down whether anyone has noticed or not.

Two things that distort the ratio and are worth knowing about. Asset values are book values, so an old asset base that is heavily depreciated shows flattering turnover while a company that has just invested shows poor turnover, with no difference in operating quality. And a business that leases rather than owns will show higher turnover than an identical one that owns, though accounting standards have narrowed that gap considerably by bringing most leases onto the balance sheet.

Questions people ask

How do I calculate total asset turnover?

Divide net sales by total assets. Sales of 2,000,000 on assets of 1,200,000 gives 1.67.

What is a good asset turnover ratio?

Depends entirely on the industry. Grocery retail runs above 4, utilities below 0.5, and neither is better than the other. Compare within your sector and against your own history.

Should I use average or closing total assets?

Average is more correct, since sales cover a period and the balance sheet is one day. Add opening and closing, divide by two, and enter that. It matters most for businesses that grew or acquired during the year.

My turnover is low. Is that bad?

Not necessarily. Capital intensive businesses are supposed to have low turnover and make their return on margin instead. It is only a problem if your margin is not compensating.

How do I improve it?

Either grow sales without adding assets, or reduce assets without losing sales. In practice that usually means inventory, receivables and disposing of anything not earning.

How does this relate to return on equity?

It is one of three DuPont components. ROE equals net margin times asset turnover times the equity multiplier. See the section above.

What about fixed asset turnover?

Same idea using only property, plant and equipment rather than the full balance sheet. It isolates how hard the productive assets work and ignores working capital.

References

A note on sourcing. Total asset turnover is a definitional ratio. The DuPont decomposition of return on equity into margin, turnover and leverage is a standard analytical framework. Industry figures for asset turnover, margins and returns on capital are compiled by Aswath Damodaran at NYU Stern, updated each January and archived for prior years.

1. Damodaran, A., Margins and ROIC by Sector, United States, NYU Stern School of Business. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/mgnroc.html
2. Damodaran, A., Return on Capital by Sector, United States, NYU Stern School of Business. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/roc.html
3. Damodaran, A., Useful Data Sets, NYU Stern School of Business. https://pages.stern.nyu.edu/~adamodar/New_Home_Page/data.html