How is asset turnover calculated?

Asset turnover is a financial metric used to assess how efficiently a company utilizes its assets to generate revenue. It is calculated by dividing the total revenue generated in a specific period by the average total assets during that same period. This ratio indicates how many dollars of revenue are generated for each dollar of assets, revealing insight into the efficiency of asset management.

The correct formula for calculating asset turnover is indeed revenue divided by total assets. This reflects the ability of a company to use its assets productively, which is crucial for investors and analysts assessing operational performance.

In the context of the other options, while they may represent useful financial ratios, they do not specifically reflect the asset turnover calculation. The first choice, Revenue / total assets, aligns closely with asset turnover, but if the answer selected was 'Revenue / capital employed,' it deviates from the precise definition of asset turnover. Capital employed typically refers to the total amount of capital used for the acquisition of profits. Therefore, while it’s an important figure in financial analysis, it doesn’t directly compute how effectively assets are turned over into revenue.