0:00:05.833,0:00:09.709
The asset turnover ratio[br]is a measure of a company's ability

0:00:09.709,0:00:12.699
to use its assets [br]to generate sales or revenue,

0:00:12.699,0:00:15.179
and is a calculation[br]of the amount of sales

0:00:15.179,0:00:17.949
or revenue generated[br]per dollar of assets.

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The formula [br]for the ratio is as follows:

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Sales or Revenues[br]÷ Total Assets

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A higher number is preferable,[br]since it suggests that

0:00:27.578,0:00:31.122
the company is using its assets[br]efficiently to make money.

0:00:31.122,0:00:34.052
A lower number may convince [br]a company to try other methods

0:00:34.052,0:00:37.301
to help maximize[br]the efficiency of its assets.

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Nevertheless, this ratio [br]varies between industries,

0:00:40.690,0:00:42.878
and can only be[br]compared effectively

0:00:42.878,0:00:45.320
between businesses[br]in the same sector.

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Asset turnover is usually[br]calculated annually,

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either for the fiscal,[br]or calendar year.

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The total assets may also be[br]the calculated average of assets

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at the beginning,[br]and end of the year.

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For example, X-Eyes Mart has [br]an asset base of $400,000,000

0:01:02.484,0:01:04.354
at the beginning [br]of its fiscal year.

0:01:04.354,0:01:08.217
The company sees its asset base[br]increase to $500,000,000

0:01:08.217,0:01:09.887
by its fiscal[br]year end,

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which means that it had an average of[br]$450,000,000 in assets for the fiscal year.

0:01:15.686,0:01:17.534
During that same[br]fiscal year,

0:01:17.534,0:01:20.844
the company generated[br]$250,000,000 in revenues.

0:01:20.844,0:01:24.885
Thus, the asset turnover ratio[br]is $250,000,000

0:01:24.885,0:01:29.845
divided by $450,000,000 [br]equals 0.56.

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Since X-Eyes Mart is a big-box retailer[br]that sells clothing and household goods,

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its asset turnover of 0.56 is below[br]the retail industry standard.

0:01:40.166,0:01:42.788
Asset turnover ratios [br]should be higher

0:01:42.788,0:01:45.488
for companies [br]in consumer staples sectors,

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since these businesses[br]tend to have small asset bases,

0:01:48.984,0:01:52.404
but a high volume of sales [br]due to competitive pricing.

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For comparison's [br]sake,

0:01:53.815,0:01:59.645
the retail giant Wal-Mart [br]had an asset turnover of 2.37 in 2012.

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As a result, [br]X-Eyes Mart CEO,

0:02:02.206,0:02:05.203
Rip Smiley decides[br]to restructure the company

0:02:05.203,0:02:08.548
in order to [br]improve efficiency.