What is the operating asset turnover formula?


Quick Answer

The operating asset turnover formula is the ratio of a business formation's sales to its assets. It is an efficiency measure to express how well a company is using its assets to generate revenue.

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Full Answer

The operating asset turnover formula has three fundamental variants: fixed asset turnover ratio, working capital turnover ratio and total asset turnover ratio. These are used to clarify the use of a company's different asset classes. The company's net sales are used as the numerator for each ratio. The denominator changes to reflect the different asset classes.

Each operating asset turnover ratio measures a company's ability to utilize its assets to generate revenue. The ratio yields the company's net sales generated per dollar of assets. Expressed as net sales over total, fixed or working capital assets, the calculation expresses how efficiently a company is using each of its asset classes.

A high asset turnover ratio is desired because it shows that the company is generating more sales with fewer assets. Conversely, a lower turnover ratio shows that the company can use its assets more efficiently to generate sales. The total operating asset formula is often used to express a company's return on equity. The formula is typically analyzed in relation to the company's financing mix and profit margin to observe the formation's overall health.

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