1.) Asset turnover ratio = net sales / average assets
Current ATR = 8,000,000/2,500,000 = 3.2 times
Proposed ATR = 12,000,000/3,000,000= 4 times
2.) Merits of proposed change in net assests-:
a high asset turnover ratio means a company is performing efficiently, as the ratio means they are generating more revenue per dollar of assets.
However, the asset turnover ratio only measures the correlation of the two values and does not indicate any causation. A drop in asset turnover ratio could lead managers on a wild goose chase for obsolete assets, when in reality the revenue dropped for an independent reason. Because of this pitfall, the asset turnover ratio should be analyzed alongside a variety of profit and revenue ratios.
encourage and respond to questions. Page 395 ENTREPRENEURIAL DECISION A1 BTN 10-5 Review the chapter's opening...