Formula
Asset Turnover =
Revenue /
Total Assets Explanation
Asset Turnover is linked to Return on Equity (ROE) through Du Pont Formula:
Return on Equity (ROE)
= Net Income / Total Shareholder Equity
= (Net Income / Sales) x (Sales / Total Assets) x (Total Assets /Total Shareholder Equity)
= Net Profit Margin x Asset Turnover x Leverage Ratio
= Return on assets x Leverage Ratio
It is also linked to Return on Asset through Du Pont Formula:
Return on Assets (ROA)
= Net Income / Total Assets
= (Net Income / Sales) x (Sales / Total Assets)
= Net Profit Margin x Asset Turnover Beaware
In the article
Joining The Dark Side: Pirates, Spies and Short Sellers, James Montier reported that In their US sample covering the period 1968-2003, Cooper et al find that firms with low asset growth outperformed firms with high asset growth by an astounding 20% p.a. equally weighted. Even when controlling for market, size and style, low asset growth firms outperformed high asset growth firms by 13% p.a. Therefore a company with fast asset growth may underperform.
Therefore, it is a good sign if a company's asset turnover is consistent or even increases. If a company's asset grows faster than sales, its asset turnover will decline, which can be a warning sign.
Related Terms
Revenue,
Total Assets,
Return on Equity,
Return on Assets
European Shorting
SGP has been successfully added into Your Stock Email Alerts list.
Feedback
My Portfolios
Browse Gurus
Bookmark
Add to Portfolio
Get Email Alerts
RSS Update
Company Website
SEC Reports
RSS