If total assets increase by the same percentage as sales increase: the ﬁrm is assumed to be
operating at full capacity.

Question

Quizplus · Accepted Answer

If total assets increase by the same percentage as sales increase, it indicates that the firm has to invest in more assets to produce and sell more, and hence, it is operating at full capacity. This assumption is based on the idea of constant asset turnover ratio, which means that the firm is efficiently using its assets to generate revenue.

If Total Assets Increase by the Same Percentage as Sales