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Equity Turnover Ratio- Meaning, Formula, Calculation & Interpretations [Video]

Equity Turnover Ratio- Meaning, Formula, Calculation & Interpretations

This comprehensive tutorial discusses the Equity Turnover Ratio in detail. You will learn exactly what the Equity Turnover Ratio is, how to calculate it, and how to interpret the results. We will also go over how to calculate the Equity Turnover Ratio in Excel using the Colgate Case Study.
You can download the Colgate Equity Turnover Ratio template from this link – https://www.wallstreetmojo.com/ratio-analysis-template/

What is Equity Turnover Ratio?
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The ratio of a firm’s net sales to its average equity over a specific period is known as equity turnover, and it can be used to determine if the company is generating enough revenue to justify the shareholders’ holding of its equity.

Formula
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Equity Turnover Formula = Net Sales / Average Shareholders’ Equity

Interpretation
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– Comparing the Equity Turnover Ratio between firms in the same industry is a good idea. For example, the oil refinery industry’s turnover ratio is substantially lower than a service business because oil refineries require a significant capital investment to generate sales.
– If a firm wishes to attract more shareholders by boosting its equity turnover ratio, it might skew the equity by increasing the debt component in the capital structure. This is a very risky action because it puts the business in a position of taking on too much debt.

For more details, you can refer to our article – https://www.wallstreetmojo.com/equity-turnover-ratio/
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