Question

ABC Depot: Asset turnover ratio

The ABC Depot reported the following data (in millions) in its recent financial statements:

	Year 2		Year 1
Total sales	$97,200		$100,520
Total assets:
Beginning of year	62,400		67,200
End of year	67,200		76,400

a. Determine the asset turnover ratio for ABC Depot for Year 2 and Year 1. Round to one decimal place.

		Year 2		Year 1
Asset turnover ratio

b. What does an asset turnover ratio indicate?

Effectiveness in the use of assets to generate revenue.

Effective use of revenue to create assets.

Effective use of assets to reduce cost.

Effective use of assets to increase assets.

Answer 1

a

	Year 2	Year 1	Notes
Total sales	97,200	1,00,520	a
Beginning assets	62,400	67,200
Ending assets	67,200	76,400
Average assets	64,800	71,800	b
Asset turnover	1.5	1.4	a/b

b

It indicates the effectiveness in the use of assets to generate revenue