← Business Metric: Financial (all topics)
Asset turnover & capital intensity
What it is
Revenue divided by assets employed - how much sales a business generates from each rupee of capital. Its inverse, capital intensity, measures how much investment is needed to support a rupee of revenue
It is the second term of the DuPont decomposition
Impact on industries
- Explains how a low-margin business can still earn strong returns, since rapid asset turnover compensates for thin margins
- Improving turnover on an existing asset base raises returns with no additional investment, which is the cheapest form of value creation
- Capital-intensive industries face a structural ceiling, so returns depend almost entirely on margin and utilisation
- Asset-light structures raise reported turnover by moving assets to a partner rather than by using them better