Multiple Choice
Which of the following best describes how the Total Asset Turnover ratio is calculated?
14. Financial Statement Analysis
Ratios: Total Asset Turnover
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ABC Company had $200,000 in Net Sales and Gross Profit of $80,000. If Total Assets equaled $400,000, what is the Total Asset Turnover ratio?
A
0.2
B
0.5
C
2.0
D
2.5
Verified step by step guidance1
Understand the concept of Total Asset Turnover ratio, which measures how efficiently a company uses its assets to generate sales. It is calculated as Net Sales divided by Total Assets.
Identify the given values from the problem: Net Sales is $200,000 and Total Assets is $400,000.
Set up the formula for Total Asset Turnover ratio: \( \text{Total Asset Turnover} = \frac{\text{Net Sales}}{\text{Total Assets}} \).
Substitute the given values into the formula: \( \text{Total Asset Turnover} = \frac{200,000}{400,000} \).
Simplify the fraction to find the Total Asset Turnover ratio.
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