Asset Management and Debt Management Ratios Use the following information to calculate current assets: sales = $100 million,capital intensity ratio = 0.5 times,debt ratio = 30 percent,and fixed asset turnover ratio = 5 times.
A)$10m
B)$15m
C)$30m
D)$50m

Question

Quizplus · Accepted Answer

Current assets can be calculated using the asset management ratio formula:

Current assets = Capital Intensity Ratio x Sales / Fixed Asset Turnover Ratio

Plugging in the given values, we get:

Current assets = 0.5 x $100 million / 5 = $10 million

However, this is the value of total assets, not just current assets. To calculate current assets, we need to use the debt management ratio:

Current assets = Total assets x (1- Debt ratio)

Plugging in the given values, we get:

Current assets = $10 million x (1- 0.3) = $7 million

Therefore, the best choice is C, which is the closest to the calculated value of $7 million.

Asset Management and Debt Management Ratios Use the Following Information