Question

A firm has net working capital of $510, net fixed assets of $2,256, sales of $6,200, and current liabilities of $820. How many dollars worth of sales are generated from every $1 in total assets

Answer 1

For every 1.73 dollars worth of sales are generated from every $1 in total Assets

Step-by-step explanation:

The question asks us to calculate the Total Assets Turnover which measures the company's assets ability to generate sales

Given NWC = $510, NFA= $2256, Sales = $6200, CL = $820

TAT = Sales / Total Assets

Total Assets = NFA + CA

CA=?

Net working capital is the difference between a firms current assets with current liabilities

NWC = CA -CL

510 =CA - 820

CA = 510 + 820 = $1330

TA = 2256 +1330

=$3586

TAT = Sales / Total Assets=6200/3586 = 1.7289/1.73

This means that for every 1.73 dollar worth of sales are generated from every $1 in total Assets

Answer 2

For every $1 of total assets, $1.73 worth of sales are generated.

Step-by-step explanation:

The dollars worth of sales generated for every $1 of total assets can be calculated using the Total Assets Turnover formula.

Total assets turnover = Net Sales / Net Total Assets

To calculate this, we need to find the value of total assets.

The working capital is made up of current assets less current liabilities.

Thus, the current assets will be = Current liabilities + net working capital

Current Assets = 820 + 510 = 1330

Total Assets = 1330 + 2256 = $3586

So total assets turnover = 6200 / 3586 = 1.7289 rounded off to 1.73.