Last year's asset turnover ratio was 2.0.Sales have increased by 25% and average total assets have increased by 10% since that time.What is the asset turnover ratio today?

Question

Quizplus · Accepted Answer

The formula for calculating the asset turnover ratio is:

Asset turnover ratio = Sales / Average total assets

Using last year's figures:

Asset turnover ratio = Sales / Average total assets = 2.0

To calculate the asset turnover ratio today, we need to find the new value of sales and average total assets:

Sales = Last year's sales * 1.25 = 2.0 * 1.25 = 2.5

Average total assets = Last year's average total assets * 1.10 = 2.0 * 1.10 = 2.2

Now we can calculate the new asset turnover ratio:

Asset turnover ratio = Sales / Average total assets = 2.5 / 2.2 = 1.136

Rounded to two decimal places, the new asset turnover ratio is 2.27.

Therefore, the best answer is D.

Last Year's Asset Turnover Ratio Was 2