The equity turnover ratio measures how much revenue a company generates per dollar of shareholders equity:
Equity turnover = Revenue ÷ Average shareholders equity
Average equity — (opening + closing) ÷ 2 — smooths the effect of buybacks, issues and retained profits during the year.
Worked example
Revenue $5.0M; equity opened at $1.8M and closed at $2.2M → average $2.0M → equity turnover 2.5×. Every shareholder dollar supported $2.50 of annual sales. Whether 2.5× is good depends entirely on the industry: retailers and distributors run high turnovers on thin margins; software firms run lower turnovers on fat margins. Turnover × margin — not either alone — drives return on equity.
The leverage caveat
Equity is only one funding source. A company financed heavily with debt shows a small equity base and therefore a flattering equity turnover — the ratio silently rewards leverage. Always read it beside the debt level: high turnover with high debt is a different creature than high turnover with a clean balance sheet. For asset productivity independent of financing, revenue ÷ Total Assets (asset turnover) is the cleaner cousin.
Trend beats snapshot
A rising multi-year equity turnover with stable margins means capital efficiency is genuinely improving; track the growth rate of both lines with the CAGR calculator. A jump caused by buybacks shrinking equity is financial engineering — real, but a different story than operational improvement.
What is a good equity turnover ratio?
Industry-relative: capital-light, low-margin sectors run high (3-6×+); capital-heavy or high-margin sectors much lower. Compare to peers and to the company’s own history.
Why use average equity instead of ending equity?
Revenue accumulated all year against a changing equity base — the average matches the flow to the base that supported it.
How does equity turnover relate to ROE?
ROE = net margin × asset turnover × leverage (DuPont). Equity turnover compresses the last two into one — high values can mean efficiency, leverage, or both.