Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Total Asset Turnover

Financial Accounting

14. Financial Statement Analysis

Ratios: Total Asset Turnover

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Multiple Choice

Which one of the following equations defines the total asset turnover ratio?

Total Asset Turnover = \frac{Average\ Total\ Assets}{Net\ Sales}

Total Asset Turnover = \frac{Net\ Sales}{Average\ Total\ Assets}

Total Asset Turnover = \frac{Gross\ Profit}{Net\ Sales}

Total Asset Turnover = \frac{Net\ Income}{Average\ Total\ Assets}

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Verified step by step guidance

Step 1: Understand the concept of Total Asset Turnover Ratio. It is a financial metric used to measure how efficiently a company uses its assets to generate sales revenue. The formula involves Net Sales and Average Total Assets.

Step 2: Analyze the options provided in the problem. The correct formula for Total Asset Turnover Ratio is Total Asset Turnover = \frac{Net\ Sales}{Average\ Total\ Assets}. This formula indicates that Net Sales are divided by Average Total Assets to calculate the ratio.

Step 3: Eliminate incorrect options. For example, Total Asset Turnover = \frac{Average\ Total\ Assets}{Net\ Sales} is incorrect because it reverses the relationship between Net Sales and Average Total Assets. Similarly, Total Asset Turnover = \frac{Gross\ Profit}{Net\ Sales} and Total Asset Turnover = \frac{Net\ Income}{Average\ Total\ Assets} are unrelated to the calculation of Total Asset Turnover.

Step 4: Confirm the correct formula by understanding its purpose. The Total Asset Turnover Ratio helps assess how effectively a company is utilizing its assets to generate sales. The correct formula \frac{Net\ Sales}{Average\ Total\ Assets} aligns with this purpose.

Step 5: Apply the formula in practice. To calculate Total Asset Turnover, gather the Net Sales figure from the income statement and the Average Total Assets from the balance sheet. Divide Net Sales by Average Total Assets to compute the ratio.