Explain what an asset turnover of 20.03% means.

Question

Question

Answer 1

Answer #1

Solution:

Calculation of Asset Turnover:

The formula for calculating the Asset Turnover is

Asset Turnover = Nets Sales / Average Total Assets

The Asset Turnover measures the ability of a firm’s average total assets to generate sales.

In case the asset turnover ratio is 1, this implies that for every $ 1 invested in assets, a sale of $ 1 is generated.

In case the Asset turnover is high, it means that the assets are being used judiciously and efficiently to generate sales.

In case the Asset turnover is low, it means that the assets are not being used judiciously and efficiently to generate sales.

As per the information given in the question asset turnover is 20.03 % = 0.2003 .

This implies that for every $ 1 invested in assets, sales of $ 0.2003 is generated.

Answer 2

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