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## 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