Which of the following could affect(s) the fixed asset turnover ratio?
A)Firms often invest in fixed assets several periods before these assets generate sales from products manufactured in their plants or sold in their stores.
B)A low or decreasing rate of fixed asset turnover may indicate expanding firms preparing for future growth.
C)Firms anticipating a decline in product sales could cut back expenditures on fixed assets and increase the fixed asset turnover ratio.
D)All of the above.
E)None of the above.

Question

Quizplus · Accepted Answer

All of the statements could affect the fixed asset turnover ratio. Investing in fixed assets before generating sales affects the ratio because the formula is net sales divided by average fixed assets. A low or decreasing rate of fixed asset turnover could indicate expanding firms preparing for future growth, which would increase the average fixed assets and decrease the ratio. If firms anticipate declining sales, they may decrease expenditures on fixed assets, which would decrease the average fixed assets and increase the ratio.

Which of the Following Could Affect(s) the Fixed Asset Turnover