Question

Williams Manufacturing uses scrap metal to produce various tools, such as drill bits, hammer heads, saw blades, and nails. The CEO has asked you to analyze the saw blades division to determine asset turnover for last quarter. You find that the saw blades division had an ROI of 20%, sales of $10 million, and operating profits of $1 million. What was the asset turnover rate for last quarter?

Answer 1

2

Step-by-step explanation:

First, we have to apply the return on investment formula so that average operating assets can come after that we apply the asset turnover ratio and the same is shown below

We know that,

Return on investment = Operating Income ÷ Average Operating Assets

20% = $1,000,000 ÷ Average Operating Assets

So, the average operating assets would be

= $5,000,000

Now the asset turnover would be

= (Net Sales ÷ average operating assets)

= ($10,000,000 ÷ $500,000)

= 2