Question

Which one of the following ratios identifies the amount of sales a firm generates for every $1 in assets?

1) Current ratio
2) Return on assets
3) Asset turnover ratio
4) Debt to equity ratio

Answer 1

The correct option: asset turnover ratio

The asset turnover ratio is the measure that identifies the amount of sales a firm generates for every $1 in assets, reflecting the efficiency with which a company utilizes its assets to produce revenue.

Step-by-step explanation:

The ratio that identifies the amount of sales a firm generates for every $1 in assets is known as the asset turnover ratio. The calculation of this ratio involves dividing the firm's total sales or revenue by its total assets, giving us an understanding of how efficiently the company is using its assets to generate sales. It is a significant indicator of the operational efficiency of a firm.

In contrast, the current ratio compares a firm's current assets to its current liabilities, measuring liquidity. The return on assets (ROA) shows the profitability relative to the company's total assets. The debt to equity ratio provides insight into a company's financial leverage by comparing its total liabilities to its shareholders' equity.