The asset turnover period ratio:
A) explains how much the firm's assets could decrease and still leave it able to pay its long-term debts.
B) indicates how efficiently the assets of the firm are being employed to generate sales.
C) measures the liquidity of the firm.
D) measures profitability.

Question

Quizplus · Accepted Answer

The asset turnover period ratio measures how efficiently a firm's assets are being utilized to generate sales. It is calculated as the average number of days it takes for a company to sell and replace its inventory, and it indicates how quickly a company is able to convert its investments in assets into revenue. Therefore, it is a measure of asset efficiency rather than liquidity or profitability. Option A does not make sense as the asset turnover period ratio does not measure how much the firm's assets could decrease and still be able to pay its long-term debts. Option C is incorrect as this ratio does not measure liquidity, which refers to a firm's ability to meet its short-term obligations. Finally, the asset turnover period ratio does not measure profitability directly, but it is a component used in calculating the return on assets (ROA) ratio, which does measure profitability.

The Asset Turnover Period Ratio