Which of the following statements in respect of the use of fixed assets, where the ratio of net fixed assets to turnover has moved from 2.1 times to 3.3 times, best reflects the reality for Posers?
A) There is considerable improvement which shows that management are using fixed assets more efficiently
B) The improvement in the use of fixed assets is overstated as depreciation will always cause the ratio to increase

Question

Which of the following statements in respect of the use of fixed assets, where the ratio of net fixed assets to turnover has moved from 2.1 times to 3.3 times, best reflects the reality for Posers?
A) There is considerable improvement which shows that management are using fixed assets more efficiently 
B) The improvement in the use of fixed assets is overstated as depreciation will always cause the ratio to increase

Quizplus · Accepted Answer

The increase in the net fixed asset to turnover ratio does not necessarily indicate an improvement in the efficient use of fixed assets. As fixed assets are subject to depreciation, the ratio will naturally increase over time regardless of how efficiently they are being utilized. Therefore, the improvement in the use of fixed assets may be overstated.

Which of the Following Statements in Respect of the Use