Higher turnover ratio means:

Turnover ratio measures how efficiently assets are being used to generate sales or revenue.

The Turnover Ratio is calculated as:

$\text{Turnover Ratio} = \frac{\text{Net Sales}}{\text{Average Assets}}$

A higher turnover ratio indicates that more sales are being generated per rupee invested in assets. This means the business is using its assets more effectively to produce revenue.

For example:

If Company A has sales of ₹10,00,000 with assets of ₹2,00,000:

• Turnover Ratio = 10,00,000 ÷ 2,00,000 = 5 times

If Company B has sales of ₹6,00,000 with assets of ₹2,00,000:

• Turnover Ratio = 6,00,000 ÷ 2,00,000 = 3 times

Company A is generating more sales (₹5) for every rupee of assets compared to Company B (₹3). This shows Company A is utilizing its assets better and more efficiently.

A lower turnover ratio would indicate under-utilization or improper utilization of assets, as assets are not generating adequate sales. A higher ratio reflects increased efficiency and productivity of assets in generating revenue.

Therefore, a higher turnover ratio means better utilization of assets.