Asset Turnover Ratio
Candlefocus EditorIt's simple to calculate the ATR. Simply divide the company's total revenue or sales for the period by its total assets. This formula is expressed mathematically as:
ATR=Total Revenue/ Total Assets
This figure is useful in analysing the revenue that a company is able to generate from its assets, and to compare this figure with other companies in similar industries. The larger the ratio, the more revenue that is generated from the same amount of assets, so higher ATR can denote higher efficiency.
ATR can be of immense use to the investors and analysts. It helps them to determine whether the company is utilising its assets properly or not. At first glance, a high ATR looks very attractive, as it suggests good usage of financial resources. However, it is rather important to measure this figure with caution and also consider the factors impacting this figure. Asset sales, as well as asset purchases, can play a major role in ATR and can result in fluctuations from one year to another. That’s why it is very important to check the trend over time rather than just focusing on the current figure.
Overall, it can be said that ATR is a metric that serves as an efficient measure of a company’s ability to convert its assets into sales. Investors take this metric into consideration when making an evaluation of a company’s financial performance and stability. Analysts use this ratio to compare similar companies in the same industry. A higher ATR usually signifies the effective utilization of the available resources, while a lower one might require further in-depth analysis of the factors that can be contributing to a lower ATR.