The asset turnover for 2015 is closest to:
A)0.071
B)0.743
C)0.693
D)0.124

Question

Quizplus · Accepted Answer

Asset turnover is calculated as the ratio of sales to total assets.

Asset Turnover = Sales / Total Assets

We are not given information about sales, but we are given information about net income, which can be used to estimate sales using the profit margin ratio.

Profit Margin = Net Income / Sales

Rearranging this equation gives:

Sales = Net Income / Profit Margin

Profit margin for 2015 is:

Profit Margin = Net Income / Sales = $82,000 / $400,000 = 0.205

Using this profit margin and the total assets for 2015 of $577,000 we can estimate the sales for the year:

Sales = Net Income / Profit Margin = $82,000 / 0.205 = $400,000

Now, we can use the sales and total assets to calculate the asset turnover ratio:

Asset Turnover = Sales / Total Assets = $400,000 / $577,000 = 0.693

Therefore, the asset turnover for 2015 is closest to 0.693.

The Asset Turnover for 2015 Is Closest To