Selected current year company information follows: Total shareholders' equity, beginning-year.. 198,935
Total shareholders' equity, end-of-year…… 121,851
The total asset turnover is:
A) 2.24 times
B) 2.81 times
C) 3.64 times
D) 4.67 times
E) 6.28 times

Question

Selected current year company information follows: Total shareholders' equity, beginning-year.. 198,935
 Total shareholders' equity, end-of-year…… 121,851
The total asset turnover is:
A) 2.24 times 
B) 2.81 times 
C) 3.64 times 
D) 4.67 times 
E) 6.28 times

Quizplus · Accepted Answer

Total asset turnover = Sales / Average total assets
We are not given sales, but we can use the formula: 
ROE = Net Income / Average Shareholders' Equity
ROE = (Net Income / Sales) * (Sales / Average Shareholders' Equity) * (Average Shareholders' Equity / Average total assets)
Solving for Sales / Average total assets, we get:
Sales / Average total assets = ROE * Average Shareholders' Equity / Net Income
Using the beginning and end shareholders' equity and assuming no dividends were paid:
Average Shareholders' Equity = (Beginning shareholders' equity + End shareholders' equity) / 2
= (198,935 + 121,851) / 2
= 160,393
Using the formula:
Sales / Average total assets = (-77,084/160,393) * 160,393 / (-77,084)
= 2.81 times

Selected Current Year Company Information Follows: Total Shareholders' Equity, Beginning-Year