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The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. A turnover ratio is a simple number used to reflect the amount of a mutual fund's portfolio that has changed within a given year. The cookie is used to store the user consent for the cookies in the category "Performance". This cookie is set by GDPR Cookie Consent plugin.

The cookie is used to store the user consent for the cookies in the category "Other. The cookies is used to store the user consent for the cookies in the category "Necessary". The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional". Average total assets is the average of total assets at year-end of the current and preceding fiscal year. The cookie is used to store the user consent for the cookies in the category "Analytics". The formula for the asset turnover ratio is as follows: Where: Net sales are the amount of revenue generated after deducting sales returns, sales discounts, and sales allowances. These cookies ensure basic functionalities and security features of the website, anonymously. Necessary cookies are absolutely essential for the website to function properly. Therefore, it will not provide valuable insights if we use this ratio to compare two companies that are not operating in the same industry. For instance, if a fund purchased and sold 5 million in assets and had average assets of 50 million, then the resulting answer of 0. On the other hand, there are some industries that hardly need any fixed assets, and thus fewer funds may be required to generate the same sales revenue. If you encounter such a situation, you should study the financial statements of the company in detail to figure out the reason behind the observation.Īs with most financial ratios, this ratio too cannot be compared across industries.Īs we have seen earlier, there are some industries which are very asset intensive and thus need a large investment. It’s all about sales and not about profit.Ī company having an outstanding investment turnover ratio might actually be in losses.

While dealing with this ratio, we have to be careful about the fact that it does not provide a complete picture of the firm’s income. A company with a high asset turnover ratio operates more efficiently as compared to. The asset turnover ratio formula is equal to net sales divided by the total or average assets of a company. A company having a higher investment turnover ratio is not necessarily performing better as compared to a firm having a lower ratio. Broad diversification The most obvious benefit of investing in index funds is that your portfolio becomes instantly diversified, minimizing the likelihood of losing some or all your money. The asset turnover ratio, also known as the total asset turnover ratio, measures the efficiency with which a company uses its assets to produce sales.