Asset Turnover shows how efficient a company is at using its assets to generate sales. It calculates the total revenue for every dollar/pound of assets a company owns.
The formula is: Total Sales / Opening Total Assets
This is asset turnover based on the opening asset position (rather than an average). This version is used in particular for the Piotroski F-Score calculations.
The number will vary from industry to industry. A capital-intensive business (e.g. a manufacturer of heavy constructions equipment) will have a much lower asset turnover than, say, a corner grocery store. In addition, companies with low profit margins tend to have high asset turnover - it indicates pricing strategy. Many businesses adopt a low-margin, high-volume approach that can result in rapid growth and (hopefully!) economies of scale.
This ratio is useful for growth companies to check if they are growing revenue in proportion to sales. The asset turnover figure can however vary significantly from year to year. For example, a business may invest heavily in new production capacity, increasing net assets, but the revenues from the extra capacity might not arise fully until the following year.
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