Asset turnover
Net sales ÷ average total assets. This estimates how much revenue the company generates for each dollar invested in assets.
Efficiency Calculators
Quick Answer
What Do the Efficiency Calculators Measure?
The Efficiency Calculators help investors assess how effectively a company uses its assets and inventory while also estimating its book value per share. They calculate asset turnover, inventory turnover and book value per share using information from a company’s financial statements. These results can help users compare operating efficiency, asset utilization and underlying shareholder value across companies.
Reviewed by Associate Professor Charles Lo, CPA, PhD.
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Efficiency & Book Value Studio
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How to use the efficiency calculators
Efficiency ratios show how much business activity a company produces from the resources available to it. This studio combines asset turnover, inventory turnover and book value per share so you can examine operating efficiency and balance sheet value without mixing the three ideas together.
Start with figures from the same reporting period. Annual revenue should be compared with average annual assets, while cost of goods sold should be compared with average inventory. Book value per share uses the latest balance sheet and diluted shares outstanding. Mixing quarterly and annual figures can make an otherwise correct calculation misleading.
Inventory turnover
Cost of goods sold ÷ average inventory. This estimates how often inventory was sold and replaced during the period.
Book value per share
Common shareholders’ equity ÷ diluted shares. This expresses accounting equity on a per share basis.
A worked efficiency example
Example company
A retailer reports $120 million of annual revenue, beginning assets of $140 million and ending assets of $160 million. Average assets are therefore $150 million. Its asset turnover is $120 million ÷ $150 million, or 0.80 times. The company generated 80 cents of revenue for each dollar of average assets.
If the same retailer reports $72 million of cost of goods sold and average inventory of $12 million, inventory turnover is 6.0 times. If common equity is $90 million and diluted shares total 30 million, book value per share is $3.00.
How to interpret the results
| Result | What a higher number may suggest | What to check next |
|---|---|---|
| Asset turnover | More revenue generated from the asset base. | Margins, asset age and whether the company leases important assets. |
| Inventory turnover | Faster inventory movement and less capital tied up in stock. | Stockouts, discounting, seasonality and changes in product mix. |
| Book value per share | More accounting equity behind each share. | Intangible assets, write downs, debt and the market price. |
Compare like with like. Banks, retailers, software companies and manufacturers use assets very differently. A ratio becomes more useful when compared with the same company over time and with similar businesses.
Common mistakes to avoid
- Using closing assets or inventory when average balances are available.
- Comparing revenue with inventory instead of using cost of goods sold.
- Treating a high turnover ratio as automatically good without checking margins and service quality.
- Assuming book value represents liquidation value or the fair value of a company.
- Comparing companies with different accounting policies, business models or reporting periods.
Where to find the inputs
Revenue and cost of goods sold appear on the income statement. Total assets, inventory and shareholders’ equity appear on the balance sheet. Diluted shares are normally reported in the earnings per share note or on the income statement. The SEC EDGAR database provides company filings, while the StockEducation US stock screener can help you compare companies after you calculate the ratios.
Efficiency calculator questions
Is a higher asset turnover always better?
No. A higher figure can indicate efficient asset use, but low margin businesses often have high turnover. Review profitability and business quality alongside the ratio.
Why use average assets and inventory?
Revenue and cost of goods sold cover a period, while balance sheet figures describe one date. Averaging the opening and closing balances creates a more comparable denominator.
Can book value per share tell me whether a stock is cheap?
Not by itself. It is an accounting measure. Compare it with market price, returns on equity, debt, asset quality and the company’s ability to generate cash.
