Asset Turnover Ratio

  

How often a person switches sides when lying in a tanning bed. Also, a way to measure how well a company is utilizing its resources.
This statistic compares a company's sales to the value of the assets it owns. The goal is to measure how efficiently the company is using its resources to create sales. The higher the number, the better the company has done leveraging its assets into sales.

Related or Semi-related Video

Finance: What is Inventory Turnover?2 Views

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Finance allah shmoop What is inventory turnover All right well

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this is inventory and this is a turnover Okay so

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what is it really Well you have inventory I'ii stuff

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you want to sell and then you sell it You

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started the year with a thousand edible necklaces The pumpkin

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spice model promises to be very popular anyway You sold

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them for ten dollars each So you have ten grand

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in inventory But you did five hundred eighty thousand units

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of sales inventory turnover Big Really big five hundred eighty

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times big Okay different story Your tesla You have one

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hundred tires in inventory You had that same number january

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one in april twelfth In july twenty third and december

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Thirty one of this year One hundred tires steady state

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But you sold fifteen thousand cars in a year We'll

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let four tires apiece Yeah That's a sixty thousand tires

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And we're not counting that thing in the trunk It's

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Not really a tyre anyway It's More like a bicycle

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tire Enormous inventory turnover Sixty thousand over one hundred or

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six hundred Ex enormous inventory turnover Very efficient use with

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the capital spent on those hundred tires Well so why

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Does inventory turnover even matter Alright Yeah it's about capital

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We hinted you there Think about your capital needs Like

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if you have to raise tons of money to store

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tons of inventory that you take forever to sell Well

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then you're not using your capital very efficiently Like why

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not make the tire manufacturers who are actually in the

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business of building distributing and planning for tyre demand Why

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not make them hold all the inventory using their capital

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not yours Well not all inventory turnover numbers mean the

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same thing like what's inventory in an oil rig leasing

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company Well you keep eight rigs on hand you know

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you'll have to tow them out to the middle of

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the ocean At some point they're crazy expensive to build

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and maintain and some years when oil is really cheap

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there just won't be any demand for your rigs for

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drilling so you'll have to store him and oil them

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and wave to them kindly So how do you make

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sense out of that number like oil rig Turn over

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when you're comparing it to say a grocery stores turnover

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where the average six pack of diet coke last like

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fifty three hours on the shelves made so inventory turnover

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is really more of a quote relative to last year

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unquote thing or a quote relative to our hated competitors

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bob unquote kind of thing And there are ways to

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game this data point as well the easiest of which

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is well too Just let your inventory amount fall like

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if you started the year with a thousand naked cupid

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hood ornaments and let supplies dwindled to just two hundred

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while then via industry norms of just taking the average

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quarterly inventory levels through the year Well you might show

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an average inventory of six hundred units this year thereabouts

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and you'd be going into the next year with only

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two hundred and generated a lot of cash along the

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way Like you turned all that money that was tied

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up in your inventory in the cash on your bottom

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lines that good Is it bad Well just like pretty

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much everything in from of finance videos and diapers it

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depends Well it's good to have low inventory to a

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point What happens if you run so low that customers

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can't buy from you because you can't fill orders for

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three months and then they go to bob than the

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cost of not having enough inventory was massive You lost

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sales profits and market share or power or theft and

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it hurt your brand like people don't respect it as

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much anymore Yeah sorry just keeping it real But in

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general high turnover is good It means you're using your

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inventory capital of the capital you spent to build your

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inventory efficiently and that when you make it to the

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top of the hill you're you know able to keep 00:03:43.925 --> [endTime] your balance Yeah

Up Next

Finance: What is Account Receivable Turnover?
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What is Accounts Receivable Turnover? This is usually called receivables turnover; it looks at how well a company is using its assets. Accounts rec...

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