Assume that a particular firm has a total asset turnover ratio lower than the industry norm. In addition, this firm's current ratio and acid test ratio also meet industry standards. Based on this information, we can conclude that this firm must have excessive
A) accounts receivable.
B) fixed assets.
C) debt.
D) inventory.

Question

Quizplus · Accepted Answer

A lower total asset turnover ratio indicates that the firm is not generating as much revenue per dollar of assets as other firms in the industry. Since the current ratio and acid test ratio are within industry norms, suggesting that the firm's liquidity and short-term asset management are in line with peers, the issue likely lies with the management of long-term assets, such as fixed assets, rather than with current assets like accounts receivable or inventory, or with the firm's debt structure.

Assume That a Particular Firm Has a Total Asset Turnover