What does the asset turnover ratio indicate?

The asset turnover ratio is a financial metric that measures how effectively a company utilizes its assets to generate sales revenue. It is calculated by dividing total sales or revenue by total assets. A higher asset turnover ratio suggests that the company is efficient at using its assets to produce revenue, indicating strong operational efficiency.

When a company has a high asset turnover, it demonstrates that its assets are being employed effectively to support the business's revenue-generating activities. This can be particularly important for firms in capital-intensive industries, where the efficient use of assets directly impacts profitability.

Other choices, such as total liabilities, investment returns, and market volatility, do not align with the purpose of the asset turnover ratio. Total liabilities pertain to a company's financial obligations, investment returns are related to the profitability of investments, and market volatility refers to fluctuations in stock prices, none of which are assessed by the asset turnover ratio.