| Asset Turnover: measure how efficiently a company uses its asset to generate sales.
Asset turnover, or sales-to-asset ratio, shows how efficiently your company is converting its assets into sales. Find your company's sales on the income statement and divide it by total assets from the balance sheet. The higher the ratio the better; a reading of one or higher indicates the company is generating more than $1 in sales for each $1 in assets. New start-ups may take time to generate significant sales, therefore track the quarterly or yearly trend of the figure. A rising asset turnover ratio over time shows assets are being utilized more effectively.
Asset turn over = net sales
Average asset
Return on Equity: its measure profitability from the common stockholders’ viewpoint.
ROE tells you how well your company is using shareholder's equity -- potentially your own equity -- to generate profits. Take net income from the income statement and divide it by the shareholder's equity from the balance sheet to attain ROE. The ratio is tracked over time -- computing the figure quarterly or yearly -- to see if return on equity is increasing or decreasing. An increasing ROE is preferable as it shows the company is more efficiently using shareholder's equity to produce profits. Business owners typically want to maximize ROE to sustain or attract investors.
Asset turn over = net income
Average common stock equity
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