How hard is a company working its assets?

Two companies own $50bn of assets each. One generates $100bn of sales from them; the other generates $20bn. The first is working its assets five times harder. Efficiency ratios — turnover ratios — measure exactly this: how much business a company drives out of what it owns.

Asset turnover: sales per dollar of assets

Asset turnover = revenue ÷ total assets. It answers: for every dollar of assets, how many dollars of sales does the company produce?

• A discount retailer might run asset turnover of 2.5 — huge sales relative to a lean asset base.
• A capital-heavy utility or telecom might run 0.3 — enormous, expensive infrastructure producing comparatively modest revenue.

Neither is "better." A high-turnover business makes its money by moving lots of goods on thin margins; a low-turnover business justifies its heavy assets with fatter margins. Notice the pattern already forming: margin and turnover trade off against each other — and holding that idea is exactly what unlocks the DuPont tree in two lessons.

A worked example

An illustrative supermarket: revenue $120bn, total assets $48bn → asset turnover = 2.5. An illustrative railway: revenue $12bn, total assets $60bn → asset turnover = 0.2. The supermarket spins its assets more than twelve times as fast — but almost certainly earns far less margin on each sale. Same profit can be reached by very different routes: sell a lot at a little, or a little at a lot.

Why it matters

Asset turnover is where the balance sheet and the income statement finally shake hands: it links what a company owns to what it sells. A falling asset turnover over several years can mean assets are growing faster than sales — capacity being added ahead of demand, or older assets no longer pulling their weight. It's a quiet efficiency signal that raw profit numbers hide.

Try it now

Asset turnover is not published anywhere, so you build it from two tables. Revenue first:

Then the asset base it was earned on:

1. Divide total revenue by total assets. That is asset turnover, and both figures come from the same fiscal period, which is what makes the division honest.
2. Now the contrast. The table below is a retailer, read on trailing figures:

Its trailing revenue alone tells you which of the two moves more goods. To finish the turnover you need its asset base:

3. Set the two turnover figures side by side, then set the two net margins beside them: Apple's is net income ÷ total revenue from its income statement above, and the retailer's profit margin is printed in its key-figures table. Notice the trade-off already forming — the business that spins its assets fastest is not the one keeping the most per sale. The next lessons confirm it.