Question

IF a company has a high asset turnover ratio does it have to have a high ROA?

Answer 1

Generally speaking, the higher the asset turnover ratio, the better the company is performing, since higher ratios imply that the company is generating more revenue per dollar of assets. It is the higher the asset turnover ratio, the more efficient a company. Conversely, if a company has a low asset turnover ratio, it indicates it is not efficiently using its assets to generate sales.

Comparisons are meaningful, only when they are made for different companies within the same sector.

Return on assets (ROA) is a financial ratio that shows the percentage of profit a company earns in relation to its overall resources. It is defined as net income divided by total assets. The higher the ROA, the better the management.

So, Higher asset turnover ratio implies higher ROA.