A firm with a total asset turnover lower than the industry standard and a current ratio which meets the industry standard may have
A) excessive fixed assets.
B) excessive inventory.
C) excessive accounts receivable.
D) excessive debt.

Question

Quizplus · Accepted Answer

A lower total asset turnover compared to the industry standard indicates that the firm is not generating as much revenue from its assets as it could be. This could be due to excessive fixed assets, which could be tying up resources that could be better utilized elsewhere. However, if the current ratio is meeting industry standards, it suggests that the firm has enough current assets to cover its current liabilities, meaning that it is not experiencing a liquidity problem. Excessive inventory or accounts receivable would typically result in a lower current ratio. Excessive debt, on the other hand, could impact the firm's ability to meet its financial obligations, but it would not necessarily affect its asset turnover ratio.

A Firm with a Total Asset Turnover Lower Than the Industry