Which of the following statements is true?
A) A larger fixed asset turnover ratio is associated with firms that are more labor intensive and require smaller fixed asset investments.
B) The fixed asset ratio cannot be compared across time for an individual company.
C) A smaller fixed asset turnover ratio is associated with firms that are more labor intensive and require smaller fixed asset investments.
D) The fixed asset ratio is not useful for comparing different companies.

Question

Quizplus · Accepted Answer

A larger fixed asset turnover ratio means that the company is generating more revenue per dollar of fixed asset investment. This suggests that the company is more efficient in managing its fixed assets. In industries that require higher labor costs and smaller fixed asset investments, a higher turnover ratio is expected because they depend more on human resources rather than machinery or facilities. Therefore, choice A is correct. Choice B is incorrect because the fixed asset turnover ratio can be compared across time for an individual company to analyze its efficiency in managing its assets. Choice C is incorrect because a smaller fixed asset turnover ratio implies that the company generates less revenue per dollar of fixed asset investment, indicating lower asset efficiency. Lastly, choice D is incorrect because the fixed asset turnover ratio is a useful tool for comparing and evaluating the efficiency of different companies in various industries.

Which of the Following Statements Is True