Which of the following is true of asset turnover?
A) It measures the efficiency with which a company uses its operating assets to generate sales.
B) It measures the proportion of operating assets to total assets.
C) It uses net purchases as a denominator in its calculation.
D) It measures the profits generated by the fixed and current assets of the company.

Question

Quizplus · Accepted Answer

Asset turnover measures the efficiency with which a company uses its operating assets to generate sales. It is calculated by dividing sales by the average value of operating assets. Choice B is referring to the asset-to-sales ratio, which measures the proportion of operating assets to total sales. Choice C is incorrect, as the denominator for asset turnover is the average value of operating assets, not net purchases. Choice D is referring to return on assets, which measures the profits generated by a company's assets.

Which of the Following Is True of Asset Turnover