Assets Turnover Ratio is a type of Turnover Ratio

Where,

Net Sales = Total Sales – Returns = Rs. 1200000.00

**that determines a company’s return on its assets relative to its net sales.**In other words, this ratio tells**how good a company is in using assets to generate sales.**Assets Turnover Ratio= Net Sales / Average Assets

**Net Sales = Total Sales During the Period – Returns - Allowances**Average Fixed Assets= Fixed Assets the Beginning of Period + Fixed Assets at the End of Period / 2

__Note: The Average Assets are calculated after removing the effect of Depreciation.____The above formula may be used to calculate Fixed Assets Turnover Ratio or Current Assets Turnover Ratio by replacing Averages Assets in the formula by Average Fixed Assets/Average Current Assets.__

## Significance and Interpretation

Assets Turnover Ratio**tells the number of times the average Assets are sold in a period,**it helps companies plan their productions.**High Assets Turnover Ratio indicates that a large amount of sales is generated using a small number of assets, which indicates that the company is highly efficient in utilizing its assets.**- However, Higher Fixed Asset Turnover Ratio may also be high because the company has sold off its assets and outsourced its operations and has maintained the same amount of sales.
**Low Assets Turnover Ratio indicates that the company is not utilizing its assets efficiently.**The company may have invested in a few assets which are not able to generate high sales for the company.__It must be noted that while comparing two companies on the grounds of Assets Turnover Ratio, they should be of the same industry.__

### Examples

**Example 1:**Use the following data of ABC Ltd, to calculate its Assets Turnover Ratio.
Total Sales during FY = Rs. 1500000.00

Total Return on Sales During FY = 20% of Total Sales

Assets at the Beginning of FY = Rs 300000.00 (adjusted for Depreciation)

Assets at the End of FY = Rs 500000.00 (Adjusted for Depreciation)

**Solution:**Net Sales = Total Sales – Returns = Rs. 1200000.00

Average Fixed Assets= Assets at the Beginning of Period + Assets at the End of Period / 2

Assets Turnover Ratio = Total Sales / Average Assets

= 1200000 / 400000 = 3

**Hence, Assets Turnover Ratio = 3**