 In this session, we are going to discuss the concept of asset turnover ratio. So asset turnover ratio is the ratio of total sales or revenue to average assets. So when I say average, it means that you are considering the value of assets in the beginning of the analysis time period. And then you are considering the value of total assets in the end of the time period for which you are doing the analysis and then you are going to calculate the average and this average will be placed in the denominator when you will be calculating the value of asset turnover ratio. So this particular value or ratio is going to help the investors in order to understand how effectively the companies are using their assets to generate the sales. So as we discussed in the inventory turnover ratio, how efficiently the inventories are converted into sales, if you have to imagine this, then you take out the inventory turnover ratio. Here we are discussing the asset turnover ratio that any company's revenues or sales are converting your assets so quickly. So this is how this is what the asset turnover ratio is going to tell us. So investors use this concept of asset turnover ratio to compare similar companies that fall in the same sector or the group. So again to decide which of the so many companies operating in a certain sector are more efficient or less efficient, we use several ratios and one of the very important ratio we use to evaluate the company in terms of its efficiency is the asset turnover ratio. It is a tool that is used to see which of the firms are making most use of their assets or and then it also helps us in identifying which of the firms are doing their business in an inefficient way. So when we look at the formula that is used to calculate the value of asset turnover ratio, we see that we put total sales key value in the numerator and we put the average of the total assets in the denominator and when we divide the total sales value by the average of the total assets, we get the value called the asset turnover ratio. So the asset turnover ratio is always calculated on annual basis and it is expressed in terms of percentages. So the total assets number used in the denominator is calculated by taking down the average as I mentioned earlier, then when we get the value of the asset turnover ratio, then we predict the efficiency on the basis of its value or we know about the efficiency, so if the value of asset turnover ratio is high, it means that the company is performing very well and if the value of asset turnover ratio is low, then it means it shows how badly or inefficiently that particular company is operating. So again, there is a caution that when you want to do a comparison on the basis of asset turnover ratio, then you will take companies from the same sector across the sectors or across the industries or across the countries for the purposes of evaluation and analysis. Another very important thing is that if you are considering the retail or the consumer staples, they have relatively small asset basis, when there are small assets, but when their sales volume is high, then in such a situation, in such businesses, you get to see the value of the asset turnover ratio high, but there are some firms like Serial Estate, for example, there are utilities that are offering utilities, there are large asset basis and the value of the denominator on that large asset basis will be large, so your asset turnover ratio value will be low, so this is to be considered and that is the reason I cautioned you earlier that you cannot compare the companies, firms on the basis of asset turnover ratio, because in capital intensive, the value of total asset which is sitting in the denominator, average total asset, if it is large, then your overall ratio value will also be low, so there is this important thing that is to be considered. The ratios value can widely vary from sector to sector or industry to industry, we need to take into consideration, so we can compare sector wise, we know that the retail companies will be high, your asset turnover ratio, so we will keep this particular thing in mind whenever you compare and they can only be meaningful when you are going to take into account the values of this particular ratio of the companies that are operating or competing with each other, so in that context they are going to give important information about the overall efficiency of that particular company or firm.