Asset turnover measures how efficiently assets are used to generate income. Which formula expresses asset turnover?

Asset turnover measures how efficiently assets are used to generate income. Which formula expresses asset turnover?

• A. Measures profitability of a company
• B. Is calculated as capital employed / sales
• C. Measures how efficiently assets are used to generate income
• D. Is calculated as net profit / total assets

Answer: (C)

Asset turnover is about how effectively a business uses its assets to generate sales. It tells you how many dollars of sales are produced for each dollar of assets invested in the business. The usual way to express it is Sales divided by Total Assets (often using average total assets). In the given options, the description that asset turnover measures how efficiently assets are used to generate income best captures what the ratio assesses—the purpose behind the measure. The other options describe profitability, a different ratio (capital employed divided by sales), or return on assets (net profit divided by total assets), none of which are the asset turnover itself.

Asset turnover is about how effectively a business uses its assets to generate sales. It tells you how many dollars of sales are produced for each dollar of assets invested in the business. The usual way to express it is Sales divided by Total Assets (often using average total assets). In the given options, the description that asset turnover measures how efficiently assets are used to generate income best captures what the ratio assesses—the purpose behind the measure. The other options describe profitability, a different ratio (capital employed divided by sales), or return on assets (net profit divided by total assets), none of which are the asset turnover itself.