Definitions

• Asset turnover, also referred to as asset turnover ratio, equals total revenues divided by total assets. Revenue is income a firm generates by selling goods or providing services. Assets are economic resources a company owns and intends to use in operating activities or manufacturing processes.
  
  

Significance

• Asset turnover is an important performance indicator because it provides insight into a company's dexterity in generating revenue from corporate assets. The higher the asset turnover ratio, the better. A lender or supplier may assess a company's asset turnover ratios for the previous five years before engaging in business partnerships.
  
  

Financial Reporting

• A financial analyst uses data from two corporate financial statements to compute asset turnover ratios. Revenue is an income statement item. An income statement is also called a statement of profit and loss. Assets are balance sheet components.