A firm with a total asset turnover lower than industry standard and a current ratio which meetsindustry standard must have excessive
A) fixed assets.
B) debt.
C) accounts receivable.
D) inventory.

Question

Quizplus · Accepted Answer

A low total asset turnover means that the company's assets are not being efficiently or effectively used to generate revenue. Having excessive fixed assets (Choice A) would contribute to this issue. A current ratio (current assets divided by current liabilities) meeting industry standards indicates that the company has sufficient current assets to cover its current liabilities, so excessive debt (Choice B) or accounts receivable (Choice C) would not be the likely cause. Excessive inventory (Choice D) could contribute to the low total asset turnover, but it is not the best choice as fixed assets are typically a larger contributor.

A Firm with a Total Asset Turnover Lower Than Industry