Finance Formulas / February 13, 2018 / Alyvia French
The asset turnover ratio is an efficiency ratio that measures a company’s ability to generate sales from its assets by comparing net sales with average total assets. In other words, this ratio shows how efficiently a company can use its assets to generate sales.
A debt ratio of .5 is often considered to be less risky. This means that the company has twice as many assets as liabilities. Or said a different way, this company’s liabilities are only 50 percent of its total assets. Essentially, only its creditors own half of the company’s assets and the shareholders own the remainder of the assets.
Because of the cost principle (and other accounting principles), assets are generally reported on the balance sheet at cost (or lower) amounts. As a result, it would be incorrect to assume that the total amount of stockholders' equity is equal to the current value, or worth, of the corporation.
Diluted EPS is a calculation used to gauge the quality of a company's earnings per share (EPS) if all convertible securities were exercised. Convertible securities are all outstanding convertible preferred shares, convertible debentures, stock options, and warrants. Unless a company has no additional potential shares outstanding (rare), the diluted EPS will always be lower than the simple or basic EPS.
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