Asked by kevin Sullivan on Jul 07, 2024
Verified
A company had net sales of $230,000 for Year 1 and $288,000 for Year 2.The company's average total assets for Year 1 were $150,000 and $180,000 for Year 2.Calculate the total asset turnover for each year and comment on the company's efficiency in the use of its assets.
Total Asset Turnover
A financial ratio measuring a company's ability to generate sales from its assets by comparing sales with the average total assets.
Net Sales
The revenue from goods or services sold after deducting returns, allowances for damaged or missing goods, and discounts.
Average Total Assets
a metric calculated by dividing the sum of assets at the beginning and end of a period by two, used to measure a company's asset efficiency.
- Assess a company's efficiency in the use of its assets through calculation of asset turnover ratios.
Verified Answer
HM
Hunter MiggelbrinkJul 08, 2024
Final Answer :
Year 1: $230,000/$150,000 = 1.53
Year 2: $288,000/$180,000 = 1.60
In Year 1,for every dollar of assets,the company earned $1.53 in net sales.
This increased to $1.60 in net sales for every dollar of assets in Year 2.
Its efficiency in the use of its assets improved from Year 1 to Year 2.
Year 2: $288,000/$180,000 = 1.60
In Year 1,for every dollar of assets,the company earned $1.53 in net sales.
This increased to $1.60 in net sales for every dollar of assets in Year 2.
Its efficiency in the use of its assets improved from Year 1 to Year 2.
Learning Objectives
- Assess a company's efficiency in the use of its assets through calculation of asset turnover ratios.