A firm has a higher asset turnover ratio than the industry average, which implies
A)the firm has a higher P/E ratio than other firms in the industry.
B)the firm is more likely to avoid insolvency in the short run than other firms in the industry.
C)the firm is more profitable than other firms in the industry.
D)the firm is utilizing assets more efficiently than other firms in the industry.

Question

Quizplus · Accepted Answer

A higher asset turnover ratio implies that the firm is utilizing its assets more efficiently than its competitors in the industry. It does not necessarily mean that the firm is more profitable or has a higher P/E ratio, nor does it guarantee long-term solvency. However, in the short run, it may indicate that the firm is more likely to generate higher revenue than its competitors with similar asset investments.

A Firm Has a Higher Asset Turnover Ratio Than the Industry