__________ best explains a ratio of sales/average net fixed assets that exceeds the industry average.
A)The firm expanded plant and equipment in the past few years
B)The firm makes less efficient use of assets than competing firms
C)The firm has a substantial amount of old plant and equipment
D)The firm uses straight-line depreciation If the firm has more old plant and equipment than competing firms, the denominator is deflated, thus producing a higher than average ratio.

Question

Quizplus · Accepted Answer

If the firm has a substantial amount of old plant and equipment, the denominator of the ratio (average net fixed assets) is lower than it would be if the company had newer assets, thus producing a higher ratio than the industry average.

__________ Best Explains a Ratio of Sales/average Net Fixed Assets