Question

A company had average total assets of $955,000. Its gross sales were $1,108,000 and its net sales were $940,000. The company's total asset turnover equals:

1.02.

0.86.

1.18

0.98.

1.13.

Answer 1

It is 0.98

Step-by-step explanation:

Total Assets Turnover Ratio(TATR) = Net Sales

Average Total Assets

Net Assets =Gross Sales-Trade discounts-Sales tax-Sales return

TATR = 940,000/955,000 = 0.98 times

It is the ratio of a company's net sales to its average assets employed.

It is a ratio that tells how efficient the company is using its assets to generate its revenue.

The drawback of this ratio is that, if the divisional manager performance is based on this, it may sometimes leads to short-term view of performance. This may then encourage dysfunctional behaviour which may include refusal to replace an old assets with lower based value which when replace may reduce this ratio because of the higher based value of the new assets while sales still remain the same