Question

An increase in the fixed asset turnover ratio from 2.0 to 2.7 indicates a.an unfavorable change in the efficiency of using cash to generate sales. b.an unfavorable change in the efficiency of using fixed assets to pay down debt. c.a favorable change in the efficiency of using fixed assets to generate sales. d.an unfavorable change in the efficiency of using fixed assets to generate sales.

Answer 1

c

Step-by-step explanation:

Fixed asset turnover is an example of an activity ratio

Activity ratios calculate the efficiency of performing daily task of a firm

Fixed asset turnover = revenue / average net fixed assets

average net fixed assets = cost of asset - accumulated depreciation

If Fixed asset turnover increases it means that less fixed asset is generating higher revenue. this is a favourable change as it means efficiency has increased