This ratio measures a company’s ability to generate sales in relation to total assets. It should be used only to compare firms within a specific industry, and, in conjunction with other operating ratios, to determine the effective employment of assets.
Why it Matters to You
This ratio can be skewed from the industry norm if you have fully depreciated assets. This could mean that you were able to take advantage of accelerated depreciation. Or it could mean that your equipment is older and/or may need to be replaced soon.