What is Asset Turnover Ratio?
The asset turnover ratio is an efficiency metric calculated as revenue divided by average total assets, indicating how many riyals of revenue each riyal of assets generates per period.
How It Works
- Formula: asset turnover = revenue / average total assets.
- Higher ratio indicates more efficient asset utilization.
- Varies widely by industry (retail high, capital-intensive low).
- Used in DuPont decomposition of return on equity.
Saudi Context
Saudi sector benchmarks: retail and wholesale typically 2.0x to 3.5x, manufacturing 0.8x to 1.5x, real estate 0.3x to 0.6x, banking 0.04x to 0.08x. The ratio helps Saudi management identify under-utilized assets, especially as Vision 2030 capex programs add significant fixed asset bases that must be supported by revenue growth.
Example
A Saudi retailer has revenue of SAR 60,000,000 and average total assets of SAR 24,000,000. Asset turnover = 60,000,000 / 24,000,000 = 2.5x, meaning each riyal of assets generates SAR 2.50 of revenue.