Asset Management and Debt Management Ratios Use the following information to calculate current assets: Sales = $100 million, capital intensity ratio = .5 times, debt ratio = 30%, and fixed asset turnover ratio = 5 times.
A) $10m
B) $15m
C) $30m
D) $50m

Question

Quizplus · Accepted Answer

The capital intensity ratio is the inverse of the fixed asset turnover ratio. Given the fixed asset turnover ratio is 5 times, the capital intensity ratio is 0.2 (1/5). Therefore, fixed assets = Sales / Fixed Asset Turnover = $100m / 5 = $20m. The capital intensity ratio is 0.5, so Total Assets = Sales * Capital Intensity Ratio = $100m * 0.5 = $50m. With a debt ratio of 30%, equity is 70%, so Total Assets = Debt + Equity. Therefore, Current Assets = Total Assets - Fixed Assets = $50m - $20m = $30m.

Asset Management and Debt Management Ratios Use the Following Information