What ratio will definitely increase when a firm increases its annual sales with no corresponding increase in assets?
A) asset turnover
B) current ratio
C) liquidity ratio
D) quick ratio

Question

Quizplus · Accepted Answer

Asset turnover is the ratio of revenue generated to the average value of assets, and it indicates how efficiently a company is using its assets to generate revenue. When a firm increases its annual sales with no corresponding increase in assets, the asset turnover ratio will increase as there is a higher revenue generated per average value of assets. The other ratios mentioned (current ratio, liquidity ratio, and quick ratio) are all affected by changes in assets and liabilities and do not necessarily increase with an increase in sales.

What Ratio Will Definitely Increase When a Firm Increases Its