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
Business Risk Ratios


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RELATED TERMS
  1. Fixed-Asset Turnover Ratio

    A financial ratio of net sales to fixed assets. The fixed-asset ...
  2. Asset Turnover Ratio

    The amount of sales generated for every dollar's worth of assets ...
  3. Receivables Turnover Ratio

    An accounting measure used to quantify a firm's effectiveness ...
  4. Overall Turnover

    A synonym for total revenues, commonly used in Europe and Asia. ...
  5. Efficiency Ratio

    Ratios that are typically used to analyze how well a company ...
  6. Turnover Ratio

    The percentage of a mutual fund or other investment vehicle's ...
RELATED FAQS
  1. Which financial ratios are considered to be efficiency ratios?

    Learn about efficiency ratios, what financial ratios are considered efficiency ratios, and how to calculate three different ... Read Answer >>
  2. How is asset turnover calculated?

    Learn what the asset turnover ratio is, how it can be used to compare companies in the same sector, and how the ratio is ... Read Answer >>
  3. How can a company raise its asset turnover ratio?

    Find out more about the asset turnover ratio, what it measures, how to calculate the ratio and how a company could increase ... Read Answer >>
  4. What do efficiency ratios measure?

    Learn about efficiency ratios, what they measure, how to calculate commonly used efficiency ratios and how to interpret these ... Read Answer >>
  5. What is considered to be a good fixed asset turnover ratio?

    Learn what the fixed asset turnover ratio is, how the ratio is calculated and how the fixed asset turnover ratio can be used ... Read Answer >>
  6. How can a mutual fund raise or lower its turnover ratio?

    Find out how a fund manager can raise or lower a fund's turnover ratio, including how to interpret this metric and what it ... Read Answer >>
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