GMI Analyst: ESG and Accounting Metrics for Investment Use – Asset Turnover

The following entry appeared as part of Governance Metrics International’s GMI Blog. GMI is the leading independent provider of global corporate governance and ESG ratings and research. Corporate stakeholders – including leading investors, insurers, auditors, regulators and others – use GovernanceMetrics services to identify and monitor risks related to non-financial measures covering key environmental, social, governance and accounting risk factors.

Asset Turnover is the ratio of a company’s sales to its assets, and is commonly used to assess how efficiently a company uses its assets to generate sales. When Asset Turnover is unusually low it is frequently due to the valuation of the assets being too high. This can occur when Goodwill and Intangibles that are the products of acquisitions build up on a balance sheet, or when management delays writing down other assets whose value may have deteriorated for any number of reasons.

GMI Ratings’ Asset Turnover metric flags companies where this issue may warrant heightened investor scrutiny. GMI Analyst’s Asset Turnover metric identifies companies whose Asset Turnover is in the lowest quintile of their industry peer group.

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The Board Director Training Institute (BDTI) is a "public interest" nonprofit in Japan dedicated to training about directorship, corporate governance, and related management techniques. It is certified by the Japanese government to conduct these activities as a regulated nonprofit. Read a summary about BDTI here, and see a menu of its services for both corporations and investors here.

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