Asset Turnover
Definition
A ratio measuring the efficiency with which a company uses its assets to generate revenue, calculated as revenue divided by total assets. A higher asset turnover indicates more productive use of the firm's asset base. In intangible-intensive businesses, traditional asset turnover ratios can be misleading because significant value-creating assets — such as internally developed software, brand equity, and human capital — are not recognised on the balance sheet under IAS 38.
Complementary Terms
Concepts that frequently appear alongside Asset Turnover in practice.
The proportion of a company's total assets or total investment that is attributable to intangible assets. A high intangible asset intensity — common in technology, pharmaceutical, and professional services firms — indicates that value creation is driven primarily by knowledge, data, and relationships rather than physical capital.
The total value of a company's or fund's assets minus its liabilities. For investment funds, NAV represents the per-share or per-unit value.
A physical asset with a finite monetary value, such as property, plant, equipment, inventory, or cash. Tangible assets are recorded on the balance sheet at cost less depreciation.
An intangible asset for which there is no foreseeable limit to the period over which it is expected to generate net cash inflows for the entity. Under IAS 38 and ASC 350, indefinite-lived intangible assets are not amortised but must be tested for impairment at least annually and whenever there is an indication of impairment.
A non-physical asset that derives value from intellectual or legal rights, or from the competitive advantage it provides. Examples include brands, patents, software, customer relationships, data, organisational know-how, and human capital.
An intangible asset that meets the identifiability criteria under IFRS 3 or IAS 38, meaning it is either separable from the entity (can be sold, transferred, or licensed independently) or arises from contractual or legal rights. Identified intangible assets are recognised separately from goodwill in purchase price allocations.
A charge applied in the multi-period excess earnings method to account for the fair return attributable to other assets that contribute to the cash flows being valued. Contributory asset charges ensure that the residual earnings attributed to the subject intangible asset are not overstated by stripping out returns earned by tangible assets, working capital, and other identified intangibles.
The monetary policy tool by which a central bank purchases financial assets to inject liquidity into the economy, typically lowering interest rates and inflating asset prices. QE periods tend to compress discount rates and elevate intangible asset valuations, making it critical for investors to understand the monetary environment when assessing enterprise value.
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