Which of the following describes the asset turnover ratio?
A) Average total assets divided by net income
B) Average total assets divided by sales
C) Net sales divided by average total assets
D) Net sales divided by net income

Question

Quizplus · Accepted Answer

The asset turnover ratio is calculated by dividing net sales by average total assets. This ratio shows how efficiently a company is using its assets to generate revenue. Option A is incorrect as it divides the wrong thing by net income. Option B is incorrect as it divides total assets by sales, which does not provide useful information about asset efficiency. Option D is also incorrect as it divides sales by net income which is not a useful ratio to assess asset turnover.

Which of the Following Describes the Asset Turnover Ratio