Question

Analyze the productivity of two companies:

a. how to tell which company showed the greatest improvement (or least decrease) in productivity as measured by Asset Turnover?

b. what would you say was the biggest cause of this increase (or lesser amount of decrease) in productivity?

Answer 1

a) Asset turnover ratio measures efficiency and productivity.It indicate amount of revenue or sales generate through $1 .Higher the ratio tells the great improvement in productivity.

Asset turnover ratio = Net sale or revenue/Total assets

For example Asset turnover of 3.2 shows that $1 generates $3.2 sale.

b) Biggest cause of increase in productivity.

• Efficient and wisely use of asset.
• Improve sale by offer discounting offer, Relaxing credit terms.
• Sell those assets which do not produce income and lease those assets which are used occasionally