Q. Illustrate about Asset turnover - performance ratios?
Asset turnover = Turnover / Total assets or Capital employed
This shows how much sales are generated for every £1 of capital employed. A low asset turnover indicates that the business is not using its assets affectively and should either try to increase its sales or dispose of some of the assets.
A company with old noncurrent assets that are almost completely depreciated will show a high asset turnover, whereas a company with recently acquired noncurrent assets will show a low asset turnover. Different accounting policies will also give different ratios, for example using the cost model to or re-valuation model. The age of the non-current assets is important in understanding the ratio. Recently acquired noncurrent assets will not be generating revenues to their full extent.