The current article is our attempt to share our learning from the analysis of hundreds of companies and understanding their businesses where we could correlate different aspects of their business with their asset turnover.

This is an especially critical parameter for companies that have a low asset turnover and as a result, are highly capital intensive. These secondary consequences primarily relate to the nature of competition that the company would face due to the ease or the difficulty of competitors to enter the business depending on the amount of capital needed to start and run the business.Īnother important consequence of asset turnover is the continuous requirement by the business for additional capital for growth. However, apart from a simple interpretation of the amount of investment needed to generate sales, an investor should focus on other secondary consequences of asset turnover (capital intensiveness). Whereas the companies with a higher asset turnover would need to invest a lower amount of money in their assets to generate sales. It means that the companies with a low asset turnover would need to invest a higher amount of money in their assets to generate sales. Effectively, an asset turnover ratio intimates an investor the amount of sales that a company can generate from an investment of ₹1 in its assets.Ī company with a high asset turnover indicates can generate a higher amount of sales from the same investment in its assets than a company with low asset turnover.Īsset turnover is also a representative of capital-intensiveness of the business of the company. It is defined as a ratio of sales and assets. Asset turnover ratio represents the efficiency with which a company is able to use investments in its assets.

Net fixed asset turnover formula