Methodology
Sector Categorization
Company Selection
Profit Margin Calculation
2. calculate each company’s asset turnover ratio by formula: Revenue/Average Total Asset
3. Compile the calculated company asset turnover according to the sector it belongs to
4. use the median asset turnover number of the specific sector to represent the sector’s profit margin
Note the median is used instead of average to avoid the distortion due to long tail distribution
Result
There are several observations we can make from this table:
1. Among those 9 sectors, Consumer Goods and Services have high asset turnover ratio
2. If we take a look at the compiled data from article “Compare Profit Margin across Different Sectors”, consumer goods and service sectors have low profit margin.
3. For Consumer Goods sectors, we do expect to see low profit margin and high asset turnover ratio because consumer products tend to have low profit margin and company earns profit by high volume sales. As for Services sector, need to investigate further to find out the reason.
4. Financial Sector has extremely low asset turnover ratio
Further Analysis
By investigating industry breakdown data, we can found out the reason why Services sector also has high asset turnover ratio is because some industries in Services sector are actually retailers such as drugs wholesale. The real ‘service’ industries such as business service and management service do have low asset turnover ratio and that’s what we expect.
Following is the screenshot of asset turnover ratio distribution among Services sector.
