What is the equation for asset turnover?

What is the equation for asset turnover?

• A. Revenue / capital employed
• B. Capital employed / total assets
• C. Revenue / total liabilities
• D. Net profit / revenue

Answer: (A)

The equation for asset turnover is defined as revenue generated per unit of assets. It measures how efficiently a company utilizes its assets to generate sales. The correct representation of this concept is revenue divided by total assets. However, the answer provided aligns with a closely related concept which is capital employed, often considered as total assets minus current liabilities. Though the term 'capital employed' may not perfectly align with the standard definition of asset turnover, it often represents the long-term assets or investment in assets required to generate revenue. In general, asset turnover provides insights into a company's efficiency in using its assets to produce sales. A higher asset turnover ratio indicates that the company is able to generate more revenue per unit of investment in its assets, showcasing operational efficiency and effective management. This makes the correct choice relevant in a scenario where understanding capital efficiency is crucial for evaluating performance.

The equation for asset turnover is defined as revenue generated per unit of assets. It measures how efficiently a company utilizes its assets to generate sales. The correct representation of this concept is revenue divided by total assets. However, the answer provided aligns with a closely related concept which is capital employed, often considered as total assets minus current liabilities. Though the term 'capital employed' may not perfectly align with the standard definition of asset turnover, it often represents the long-term assets or investment in assets required to generate revenue.

In general, asset turnover provides insights into a company's efficiency in using its assets to produce sales. A higher asset turnover ratio indicates that the company is able to generate more revenue per unit of investment in its assets, showcasing operational efficiency and effective management. This makes the correct choice relevant in a scenario where understanding capital efficiency is crucial for evaluating performance.