What does 'Asset Turnover' mean?

Asset turnover is a financial metric that measures the efficiency of a company in generating sales revenue from its assets. It is calculated by dividing the company's net sales by its average total assets. If a company has a higher asset turnover ratio, this indicates that the company is utilizing its assets effectively to generate revenue. This metric is important as it helps investors and analysts assess a company's operational efficiency and its ability to generate profit from its investments. A higher asset turnover ratio is generally favorable as it suggests that the company is managing its assets well and generating more sales per unit of investment.