Asset turnover rate is a key figure that shows how efficiently a company uses its total assets to generate revenue. In other words, the number tells how many times the company's assets are "turned over" through the year's sales.
Formel
The turnover rate of assets is calculated as follows:
Asset turnover rate = Revenue / Assets
Here, the average of the company's assets in the period is typically used to get the most accurate picture.
Fortolkning
- En high turnover rate shows that the company is good at utilizing its assets to generate sales.
- En low turnover rate may indicate that the company has too many assets in relation to revenue, or that the assets are not being used efficiently.
Example
A company has an annual turnover of DKK 20 million. and average assets of DKK 10 million. DKK:
Asset turnover rate = 20,000,000 / 10,000,000 = 2.0
This means that the company's assets are turned over twice in one year.
Anvendelse
The key figure is used by investors, banks and management to assess the efficiency of the company's operations. It should always be compared with industry standards, as capital-intensive industries (e.g. production and transport) naturally have a lower turnover rate than service companies.