Asset turnover formula for generating sales from assets.

• A. Net income / average total assets
• B. Net sales / average total assets
• C. Gross profit / average total assets
• D. Cost of goods sold / average inventory

Answer: (B)

Asset turnover measures how efficiently a company uses its assets to generate sales. The correct form uses net sales (or revenue) divided by average total assets, because it directly relates the amount of sales produced to the asset base available during the period. Using net income would shift the focus to profitability, not sales efficiency; gross profit targets margin, not how much sales are generated from assets; and cost of goods sold with average inventory compares cost flow to a subset of assets rather than total assets used to generate all sales. Therefore, net sales over average total assets best captures the intended concept.