What does the Asset Turnover ratio reflect?

The Asset Turnover ratio measures how efficiently a company utilizes its assets to generate sales. Specifically, it is calculated by dividing net sales by average total assets. This ratio indicates how many dollars of sales are generated for each dollar of assets, highlighting the effectiveness of asset management. A higher asset turnover ratio suggests that a company is using its assets more efficiently to drive sales, which is a positive indicator of operational performance.

The other options do not accurately describe the purpose of the Asset Turnover ratio. The first option pertains to profitability, reflecting net income relative to total assets, but does not measure sales efficiency. The third option focuses on a comparison between cash dividends and earnings per share, which is not related to asset utilization. The fourth option discusses gross profit in relation to sales, which measures profitability rather than efficiency in asset management. Thus, the choice that correctly defines the Asset Turnover ratio is the one that captures the relationship between net sales and average total assets.