A total asset turnover ratio of 3.5 indicates that:
A) For every $1 in sales,the firm acquired $3.50 in assets during the year.
B) For every $1 in assets,the firm produced $3.50 in net sales during the year.
C) For every $1 in assets,the firm earned gross profit of $3.50 during the year.
D) For every $1 in assets,the firm earned $3.50 in earnings per share.
E) For every $1 in assets,the firm paid $3.50 in dividends per sharE.

Question

Quizplus · Accepted Answer

A total asset turnover ratio measures a company's ability to generate sales as a function of its assets. A ratio of 3.5 indicates that the company generated $3.50 in net sales for every $1 in assets that it possessed during the year. Option A is incorrect because it implies that the company acquired $3.50 in assets for every $1 in sales, which is not what the ratio measures. Options C, D, and E are also incorrect because the ratio only relates to sales and assets, and does not incorporate measures of profitability or dividends.

A Total Asset Turnover Ratio of 3