**Assets Turnover Ratio**is a type of Turnover Ratio

**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.**

$$Assets\quad Turnover\quad Ratio=$$$$\frac { Net\quad Sales }{ Average\quad Fixed\quad Assets } $$

**Net Sales = Total Sales During the Period – Returns - Allowances**

Where,

$$Average\quad Fixed\quad Assets=$$$$\frac { Opening\quad F.\quad Assets\quad +\quad Closing\quad F.\quad Assets }{ 2 } $$

__Significance and InterpretationNote: 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.__

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

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**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

$$Average\quad Fixed\quad Assets=$$$$\frac { Opening\quad F.\quad Assets\quad +\quad Closing\quad F.\quad Assets }{ 2 } $$

**⇨**Rs. 400000.00

**Average Assets =**(500000 + 300000) / 2

**Assets Turnover Ratio =**Total Sales / Average Assets

**⇨**1200000 / 400000

**⇨**3

**Hence, Assets Turnover Ratio = 3**