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CFA Level 1 - Operating Efficiency 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
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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 |
Next: CFA Level 1 - Business Risk Ratios
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