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Finance Formulas / July 13, 2018 / Iliana Williamson

The asset turnover ratio is an efficiency ratio that measures a company’s ability to generate sales from its assets by comparing net sales with average total assets. In other words, this ratio shows how efficiently a company can use its assets to generate sales.

Conversely, firms in sectors, such as utilities and telecommunications, which have large asset bases will have lower asset turnover. Since this ratio can vary widely from one industry to the next, considering the asset turnover ratios of a retail company and a telecommunications company will not make for an accurate comparison. Comparisons are only meaningful when they are made for different companies within the same sector.

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