What would an increase in the asset turnover ratio suggest?

An increase in the asset turnover ratio indicates that a company is making more efficient use of its assets to generate revenue. The asset turnover ratio measures how effectively a company uses its assets to produce sales. It is calculated by dividing total sales by total assets. When this ratio increases, it suggests that the company is generating more sales per dollar of assets owned.

This efficiency can stem from improved operational performance, better management of assets, or a strategic focus on sales and marketing efforts that enhance revenue generation. In essence, a higher asset turnover ratio reflects that the company is optimizing its asset base to drive more sales, which is a positive indicator of performance from an operational standpoint.