Total Asset Turnover Definition & Formula

Total Asset Turnover Definition

The total asset turnover represents the amount of revenue generated by a company as a result of its assets on hand.  This equation is a basic formula for measuring how efficiently a company is operating. 

Total Asset Turnover Formula

Total Asset Turnover = Sales/Net Total Assets

The sales represents all the revenue generated by the company and is disclosed on a company's income statement.  The total assets represents the assets listed on the company's balance sheet.  The higher the ratio of sales to net total assets, the better.  This implies that a company is generating "x" number of sales for every dollar of assets on hand. 

Interpreting the Total Asset Turnover

The total asset turnover is one of those simple calculations that speaks volumes about the health of a company.  This number is reported quarterly and can give an insight on whether a company is becoming more efficient at their core competencies over time.  There is no set number that represents a good total asset turnover value because every industry has varying business models.  One general rule of thumb is that the higher a company's asset turnover, the lower the profit margins, since the company is able to sell more products at a cheaper rate.