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

Question

Quizplus · Accepted Answer

A lower asset turnover ratio indicates that a firm is not generating as much revenue per dollar of assets as other firms in the industry, suggesting less efficient use of assets rather than directly implying profitability, insolvency risk, P/E ratio, or spending levels on fixed assets.

A Firm Has a Lower Asset Turnover Ratio Than the Industry