Consider two companies (A and B) with equal profit margins of 18%. Company A has an asset turnover of 1.2 and Company B has an asset turnover of 1.5. If all else is equal, Company B with its' higher asset turnover, is less profitable because it requires more revenue to turn its assets over.

Question

Quizplus · Accepted Answer

A higher asset turnover ratio indicates that Company B is more efficient at using its assets to generate revenue, which could lead to higher profitability, not less, assuming profit margins are equal.

Consider Two Companies (A and B) with Equal Profit Margins