Question

Last year's asset turnover ratio was 2.0. Sales have increased by 25% and total assets have increased by 10% since that time. What is the current asset turnover ratio?

a. 1.82
b. 2.05
c. 2.15
d. 2.27

Answer 1

To find the current asset turnover ratio, need to account for the 25% increase in sales and the 10% increase in total assets. Based on the previous asset turnover ratio of 2.0, the new ratio is calculated to be 2.27, which is answer d.

Step-by-step explanation:

The student is asking about calculating the current asset turnover ratio. Given that last year's asset turnover ratio was 2.0 and sales have since increased by 25% while total assets have increased by 10%, we can calculate the new asset turnover ratio using the formula:

Asset Turnover Ratio = Sales / Total Assets

Last year's sales (assuming a base value of 100 for simplicity) would have been 100 x 2.0 = 200. With a 25% increase, the new sales figure is 200 x 1.25 = 250. If last year's total assets were 100, a 10% increase leads to a new total asset value of 100 x 1.10 = 110. Thus, the new asset turnover ratio is:

Asset Turnover Ratio = 250 / 110 = 2.27

Therefore, the correct answer is d. 2.27.

Answer 2

Answer: d. 2.27

Step-by-step explanation:

Asset Turnover = Total sales / Average Assets

Last years turnover ratio was 2.0 so assume Sales were $20 and Assets were $10 which would give the turnover of 2.0

The new turnover would be;

= (20 * 1.25)/(10 * 1.1)

= 25/11

= 2.27