If a business entity shows a high asset turnover ratio,it means that
A) It requires a high level of fixed assets to sustain is sales revenue year on year.
B) The profit generated year after year represents a high percentage of assets.
C) It always buys state of the art assets and discards older assets before they are fully obsolete.
D) It uses a small amount of assets to generate relatively large amounts of sales revenue.

Question

Quizplus · Accepted Answer

A high asset turnover ratio indicates that the entity is generating a large amount of sales revenue using a relatively small amount of assets. Therefore, it does not require a high level of fixed assets to sustain its sales revenue, nor does it necessarily generate a high profit percentage from its assets. It may or may not buy state of the art assets, but the key factor is its efficiency in utilizing its existing assets to generate revenue.

If a Business Entity Shows a High Asset Turnover Ratio,it