Asset Turnover is calculated as which of the following?

• A. Revenue / Total Assets
• B. Net Income / Total Assets
• C. Revenue / Total Liabilities
• D. Assets / Revenue

Answer: (A)

Asset turnover shows how effectively a company uses its assets to generate sales. The right formula is revenue divided by total assets. This tells you how many dollars of sales come from each dollar of assets, so a higher number means more efficient use of the asset base. Using net income would shift the focus to profitability rather than asset productivity, revenue over liabilities mixes a sales measure with a liability base and isn’t about asset use, and flipping the ratio (assets over revenue) would invert the meaning of the measure. Example: if revenue is 500,000 and total assets are 250,000, asset turnover is 2.0, meaning $2 of sales per $1 of assets.