What indicates a company’s effectiveness in using its assets to generate sales?

The turnover ratio is a key financial metric that measures how efficiently a company utilizes its assets to produce sales. Specifically, it assesses the relationship between the sales generated and the assets employed in generating those sales. A higher turnover ratio indicates that the company is effectively using its assets to generate more revenue, suggesting strong operational efficiency. This metric can apply to various types of turnover ratios, such as inventory turnover or total asset turnover, each providing insight into different aspects of asset utilization.

In contrast, the other choices focus on different financial measures that do not specifically gauge asset efficiency in generating sales. The current ratio assesses a company's short-term liquidity by comparing current assets to current liabilities. Return on equity measures the profitability of a company in relation to shareholder equity, indicating how well the company uses equity financing to generate profits. The debt to equity ratio provides insights into a company's financial leverage by comparing its total liabilities to shareholder equity. While all these ratios are important for evaluating a company's financial health, they do not directly quantify how effectively the company is turning its assets into revenue.