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Trading and Investment Terms

Turnover Ratio

A turnover ratio represents the number of assets or liabilities that a company replaces with its sales. 

Formula:

The asset turnover ratio formula is equal to net sales divided by the total or average assets of a company. 

Assets Turnover ratio= Net sales/ Total average Assets

  • Net sales:  Are the amount of revenue generated after deducting sales returns, sales discounts, and sales allowances.
  • Average total assets: Are the average of aggregate assets at year-end of the current or preceding fiscal year. 

Example

Company A reported beginning total assets of $199,500 and ending total assets of $199,203. Over the same period, the company generated sales of $325,300 with sales returns of $15,000.

Assets Total over Ratio=$325,300-$15,000/$199,500+$199,203/2=1.5565

  Company A generated $1.5565 in sales.

Some important Turnover Ratios are:

  1. Inventory Turnover Ratio
  2. Debtors Turnover Ratio
  3. Average Collection period
  4. Fixed Asset Turnover Ratio
  5. Total Assets Turnover Ratio
  6. Capital Employed Turnover Ratio