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Petra University
Faculty of Business
Accounting Department
The Impact of Assets Turnover on Profitability
in Service Sector
Candidate Name:
Saif Alisalm Abusrhan
Registration number:
201720178
Name of Supervisor:
Dr. Abdul Rahman Al Natour
This study is provided to complete the
requirements of graduation project in accounting.
Summer Semester
2020/2021
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Abstract
This study aims to introduce the impact of assets turnover on profitability in service
sector. Comparisons are only meaningful when they are made for different companies
within the same sector, you can also calculate your ratio in previous periods to
determine whether it is improving or declining.
The study examined a data of 9 firms from service sector from 2016 to 2019 and the
data was collected from the Amman stock exchange (ASE). A descriptive statistical
analysis approach was used and analysis to process the data statistically. The studies
find that there is a significant impact between variables, and the regression model was
valid to find that there is a relationship between the variables.
But, because of the narrow time window we recommend using more variables and
using larger samples and increase the time window of the study sample to understand
assets turnover more accurately and also to find the accurate correlation between
assets turnover and profitability. And to conduct more researches that include other
sectors such as the service and financial sectors and comparing the results of those
studies with the results of the current study in order to know the most sectors that
practice assets turnover.
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1. introduction
This research discusses the impact of assets turnover on services sector net income.
First of all I will discuss the assets turnover; assets turnover ratio measures the value
of the company sales or revenues relative to the value of assets. The asset turnover
ratio can be used as an indicator of the efficiency with which a company is using its
assets to generate revenue. The higher assets turnover the more efficient a company is
at generating revenue from its assets. Conversely, if a company has a low asset
turnover ratio, it indicates it is not efficiently using its assets to generate sales. The
asset turnover ratio is calculated on an annual basis. (Sunjoko, M. I., & Arilyn, E. J.
(2016))
Service sector is that portion of the economy that produces intangible goods.
The service sector provides a service, not an actual product that could be held in your
hand. Activities in the service sector include retail, banks, hotels, real estate,
education, health, social work, computer services, recreation, media, communications,
electricity, gas and water supply.
Problem of this study
The higher the asset turnover ratio, the better the company is performing. Since this
ratio can vary widely from one industry to the next, comparing the asset turnover
ratios of a retail company and a telecommunications company would not be very
productive. Comparisons are only meaningful when they are made for different
companies within the same sector, you can also calculate your ratio in previous
periods to determine whether it is improving or declining. (Irman, M., & Purwati, A.
A. (2020))
Importance of this study
If your asset turnover ratio is higher than others in your industry and is increasing
over time, your business likely uses its assets efficiently.(
https://www.investopedia.com/terms/a/assetturnover.asp).
This gives investors and creditors an idea of how a company is managed and uses its
assets to produce products and sales. Sometimes investors also want to see how
companies use more specific assets like fixed assets and current assets. The fixed
asset turnover ratio and the working capital ratio are turnover ratios similar to the
asset turnover ratios that are often used to calculate the efficiency of
these asset classes. The primary advantage of the total asset turnover ratio is the
same as any financial ratio; it puts company-specific asset information in a form that
is easily comparable for investors. Managers can discover assets success and failure
by examining the ratio year over year.
For example, if the asset turnover ratio suddenly drops, it could indicate that an
asset has become outdated to operations and should be sold. (Warrad, L., & Al
Omari, R. (2015))
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Study Questions
• What is the impact of Assets turnover and profitability in the service sector?
• Can you compare the assets turnover ratios between the different sectors?
Study Objectives
• Understand the impact of profitability on assets turnover.
• Provide some suggestions that would help in enhancing the profitability of the
listed firm in Amman Stock Exchange.
Chapter tow
Literature review
2.1 Previous studies
1) The Impact of Turnover Ratios on Jordanian Services Sectors’
Performance. (Warrad, L., & Al Omari, R. (2015))
“Profitability ratios are a group of financial ratios that show how much profit a
business makes in a given context, while asset utilization ratio indicates how
efficiently a business is operating assets to generate cash. The difference between
profitability margin and sales margin is more specific sales. While profitability ratios
measure overall profitability performance, asset utilization ratios focus on company-
specific metrics.
Warrad & Al Omari conducting this study to examine the impact of turnover ratio on
performance of Jordan service industries for the period from 2009 to 2012. The study
shows that there is no significant effect of turnover ratio on the profitability of the
Jordanian service industries. Service industries in Jordan and examining primary and
secondary assumptions, studies show no significant impact of revenue ratio on the
performance of Jordan service industries.
Out of assets (ROA), there was no significant impact of working capital turnover on
ROA of Jordanian service industries, had no significant effect of total asset turnover
on ROA of service industries. Jordan, and had no significant effect of fixed asset
turnover on ROA of Jordanian service industries. In addition, the study indicated that
there was no significant effect of turnover ratio on return on equity (ROE) of
Jordanian service industries, with no 'significant round effect' working capital
turnover to the ROE of Jordanian service industries, there is no significant effect of
the total asset turnover on the ROE of the Jordanian service industries and no
significant effect on the ROE of the service industries in Jordan. There was no
significant impact of fixed asset turnover on the ROE of Jordan's Service Industries.
In addition, the study concludes that education service sectors have the lowest
working capital turnover ratio and the health service sector have the highest working
capital turnover ratio. Additionally, we find that the hospitality and tourism sectors
have the lowest total asset turnover, while the utilities and energy sectors have the
highest fixed asset turnover and the hotel has the lowest fixed asset turnover ratio,
while the utilities and energy sectors have the highest.
