You can find both assets and liabilities on a company's balance sheet, along with shareholder equity. The balance sheet will usually compute the sum of a company's liabilities and equity, which is always equal to a company's assets.
Measuring efficient use of assets
Two metrics are commonly used in financial analysis to determine how well a company uses its assets: asset turnover and return on assets.
Asset turnover is a ratio that measures how efficiently a company uses its assets to generate sales. It's simply a company's revenue divided by its average total assets, and it's usually computed on an annual basis. A high asset turnover, relative to its peers, indicates a company is operating extremely efficiently. A company may also exhibit an improving asset turnover ratio over time, indicating management is effectively expanding the business by increasing revenue without adding as many new assets to the balance sheet.
The return on assets is the ratio between net income and average total assets. It's very similar to the turnover ratio but looks at a company's bottom-line profits instead of its top-line sales growth. It's much more useful for mature businesses than for small growth stocks.
Building a basic understanding of the types of assets a company holds and uses in its operations and how it turns those assets into revenue and profits can make you a better investor.
