Chartered Financial Analyst (CFA) Level 1 Practice Exam

How is Total Assets Turnover calculated?

1. Average total assets / total revenue

2. Revenue / average total assets

3. Cost of goods sold / average total assets

4. Revenue from credit sales / average total assets

The correct answer is: Revenue / average total assets

Total Assets Turnover is a financial metric that measures the efficiency of a company's use of its assets to generate sales or revenue. It is calculated by dividing total revenue by average total assets. By taking revenue and dividing it by average total assets, the Total Assets Turnover ratio provides insight into how effectively a company is utilizing its assets to produce sales. A higher ratio indicates more efficient use of assets, suggesting the company is generating more revenue per dollar of assets employed, while a lower ratio may indicate inefficiency. This metric is critical for assessing operational efficiency and resource management, making it a valuable indicator for analysts and investors evaluating a company's financial performance. In this instance, the other options do not accurately reflect the relationship between revenue and total assets, focusing instead on different metrics that do not align with the definition of Total Assets Turnover.