The asset turnover ratio is computed by dividing
A) net income by average total assets.
B) net sales by average total assets.
C) net income by ending total assets.
D) net sales by ending total assets.

Question

Quizplus · Accepted Answer

The asset turnover ratio measures a company's efficiency in utilizing its assets to generate revenue. The formula for asset turnover ratio is net sales divided by average total assets. Option A is incorrect because net income is a measure of profitability, not asset utilization. Option C is incorrect because it only takes into account the ending total assets, whereas the asset turnover ratio considers the average total assets. Option D is incorrect because it only considers the ending total assets, whereas the asset turnover ratio considers the average total assets.

The Asset Turnover Ratio Is Computed by Dividing