Question

Kaleb's Karate Supply had a profit margin of 6.4 percent, sales of $10.5 million, and total assets of $6.4 million.

a. What was total asset turnover? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
b. If management set a goal of increasing total asset turnover to 2.10 times, what would the new sales figure need to be, assuming no increase in total assets?

Answer 1

Total asset turnover for Kaleb's Karate Supply is 1.64. To achieve a total asset turnover of 2.10 times, without increasing total assets, the new sales would need to be $13.44 million.

Step-by-step explanation:

To answer the student's question regarding Kaleb's Karate Supply:

The total asset turnover ratio measures how effectively a company is using its assets to generate sales and can be found by dividing sales by total assets. Using the information given:

Total Asset Turnover = Sales ÷ Total Assets

Total Asset Turnover = $10.5 million ÷ $6.4 million

Total Asset Turnover = 1.64 (rounded to two decimal places)

If management wants to increase the total asset turnover to 2.10 times without increasing total assets, the new sales figure can be determined with the following calculation:

New Sales = Desired Asset Turnover × Total Assets

New Sales = 2.10 × $6.4 million

New Sales = $13.44 million (rounded to two decimal places)