BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A. The ratio will increase
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B. The ratio will not change
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C. The ratio will decrease
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either a or c
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Detailed explanation-1: -The ratio will decrease. Asset turnover ratio is given by: Asset turnover r…
Detailed explanation-2: -Asset Turnover Ratio = Net Sales / Average Total Assets Net sales is the total amount of revenue retained by a company.
Detailed explanation-3: -Interpretation of the Asset Turnover Ratio Obsolete inventory or sluggish sales can lower the ratio. Same with receivables – collections may take too long, and credit accounts may pile up. Fixed assets such as property, plant, and equipment (PP&E) could be unproductive instead of being used to their full capacity.
Detailed explanation-4: -The asset turnover ratio is a measurement that shows how efficiently a company is using its owned resources to generate revenue or sales. The ratio compares the company’s gross revenue to the average total number of assets to reveal how many sales were generated from every dollar of company assets.
Detailed explanation-5: -Increase Sales You can improve your asset-turnover ratio by increasing sales. Your fixed assets may be producing enough products, but you may not be selling them quickly enough. Examine your operation to see if you are warehousing products for long periods of time.