CFA Level 1

Financial Ratios - Operating Efficiency Ratios


1. Total Asset Turnover
This ratio measures a company's ability to generate sales given its investment in total assets. A ratio of 3 will mean that for every dollar invested in total assets, the company will generate 3 dollars in revenues. Capital-intensive businesses will have a lower total asset turnover than non-capital-intensive businesses.

Formula 7.25
Total asset turnover = net sales
average total assets

2. Fixed-Asset Turnover
This ratio is similar to total asset turnover; the difference is that only fixed assets are taken into account.

Formula 7.26
Fixed-asset turnover = net sales
average net fixed assets

3. Equity Turnover
This ratio measures a company's ability to generate sales given its investment in total equity (common shareholders and preferred stockholders). A ratio of 3 will mean that for every dollar invested in total equity, the company will generate 3 dollars in revenues.

Formula 7.27

Equity turnover = net sales
average total equity




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