A company has computed that their ‘asset turnover’ is 3. Which of the following statements is...
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A company has computed that their ‘asset turnover’ is 3. Which of the following statements is the best interpretation of these results?
For every $3 invested in assets, $1 in sales is generated.
For every $1 invested in assets, $3 in sales is generated.
For every $3 of sales, $1 of net profit is generated.
For every $3 invested in assets, $1 in net profit is generated.
Homework Answers
Assets turnover represents the capability/ efficiency of the company to generate sales by investing in assets. efficiency is computed by comparing the total sales with its average total assets.
asset turnover = net sales/ average total assets
in the given case asset turnover is 3 that represents for every $1 invested in assets is able to generate $3 worth of sales.
so for the above question the right answer would be.
For every $1 invested in assets, $3 in sale is generated.
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