Which one of the following ratios identifies the amount of assets a firm needs in order to generate $1 in sales?
A) current ratio
B) debt-to-equity
C) retention
D) asset turnover
E) return on assets

Question

Quizplus · Accepted Answer

Asset turnover ratio measures how efficiently a company uses its assets to generate sales revenue. It is calculated by dividing total revenue by average total assets. Therefore, it identifies the amount of assets a firm needs in order to generate $1 in sales. Current ratio (A) measures a firm's ability to cover its short-term liabilities with its current assets. Debt-to-equity (B) measures a firm's proportion of debt to equity financing. Retention (C) refers to the percentage of earnings that a company retains after paying out dividends to shareholders. Return on assets (E) measures a company's efficiency in using its assets to generate earnings.

Which One of the Following Ratios Identifies the Amount of Assets