If total assets increase by the same percentage as sales increase the larger the increase in sales,
the more likely there will be a need for external ﬁnancing.

Question

Quizplus · Accepted Answer

When total assets increase at the same rate as sales, the company's asset turnover ratio remains constant. However, if sales increase significantly, the company may need to invest in additional assets such as equipment, inventory, or property to meet the increased demand. This can lead to a need for external financing to fund these investments.

If Total Assets Increase by the Same Percentage as Sales