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You are given the following information about Grill Cedar: The company has sales of $304,380, and...

You are given the following information about Grill Cedar: The company has sales of $304,380, and net fixed assets of $64,000. In addition, the firm’s net working capital is $34,000 and current liabilities of $16,000. Calculate the Total Asset Turnover Ratio. Is the firm more or less efficient than its competitor that has a Total Asset Turnover of 2.75?

A. 2.11, less efficient

B.2.11, more efficient

C. 2.67, less efficient

D. 2.67, more efficient

E. 1.44, less efficient

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Answer #1

Asset turnover = Net sales / Total Assets

Net sales = $304,380

Total Assets = Net fixed assets + Net Working Capital + Current Liabilities = $64,000 + $34,000 + $16,000 = $114,000

Asset turnover = $304,380 / $114,000

Asset turnover = 2.67

The Grill Cedar Asset turnover (2.67) is lower then its competitor's (2.75), so Grill Cedar is less efficient than its competitor.

Because asset turnover suggests that for every $1 invested how much sales are generated. So Grill Cedar generates $2.67 for every $1 asset invested. Lower the total asset turnover ratio, the less efficient the company is.

Answer is 2.67, less efficient

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