A company with net sales of $800,000 and average total assets of $400,000 has an asset turnover ratio of:

Question

Accepted Answer

2.0. The asset turnover ratio is calculated by dividing net sales by average total assets: $800,000 / $400,000 = 2.0. This means the company generates $2 in sales for every $1 invested in assets, indicating efficient use of its asset base.

0.5 would result from dividing average total assets by net sales ($400,000 / $800,000 = 0.5), which reverses the correct calculation. 1.0 would indicate that sales exactly equal total assets, which would require either $800,000 in assets or $400,000 in sales. 4.0 would result from doubling the correct answer, perhaps by incorrectly using total assets of $200,000 or sales of $1,600,000.

The asset turnover ratio is an important efficiency ratio on the DSST Business Mathematics exam that measures how effectively a company uses its assets to generate revenue. A higher ratio indicates more efficient asset utilization. Students should understand that this ratio varies significantly by industry - asset-light businesses like consulting firms typically have higher ratios than capital-intensive industries like manufacturing or utilities.

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