The ATO ratio is observed to be higher in certain sectors, especially retail, as it has fewer assets and more sales. Increasing revenue or sales, selling assets, promoting efficiency, leasing assets instead of buying them, improving inventory management, and using technology are some factors that can help companies enhance or raise their ratio. The company's profit margins are inversely proportional to the ATO of the company, which states that businesses with higher profit margins have low asset turnover, and those with low-profit margins have higher turnover.Ī higher ratio is considered good as it suggests efficient and effective use of assets instead of a lower one, indicating that the company is not using its resources and assets properly and efficiently.Ī lower ratio can suggest that the company has over-invested in the fixed assets. It is calculated annually every financial period or financial year. The ratio is an activity ratio used in DuPont analysis and will be a part of the fundamental analysis of the company. Net Sales = Gross Sales - Returns - Discounts - AllowancesĪverage Total Assets = (total assets at the beginning of the year + total assets at the end of the year) / 2 The Asset Turnover (ATO) ratio is a financial ratio used to analyze the efficiency of the assets in generating revenue for the company.Īsset Turnover = Net Sales / Average Total Assets
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