Other things being equal, a decrease in total asset turnover will result in ________ in the return on total assets.
A) an increase
B) a decrease
C) no change
D) an undetermined change

Question

Quizplus · Accepted Answer

Total asset turnover is calculated by dividing net sales by total assets. As it indicates the amount of sales generated by each dollar of assets, a decrease in total asset turnover implies that less sales is being generated for every dollar of assets. This can be due to inefficient management of assets or declining sales. As the return on total assets is calculated by dividing net income by total assets, a decrease in total asset turnover will result in a decrease in the return on total assets. Therefore, the best choice is B, a decrease.

Other Things Being Equal, a Decrease in Total Asset Turnover