Multiple Choice
XYZ Company had net sales of \$500,000 and COGS of \$320,000. If the beginning balance of Fixed Assets was \$300,000 and the ending balance in Fixed Assets was \$400,000, what is the Fixed Asset Turnover ratio?
14. Financial Statement Analysis
Ratios: Fixed Asset Turnover
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
What does a fixed asset turnover ratio of 4 times represent?
A
The company generates \$4 in net sales for every \$1 invested in fixed assets.
B
The company replaces its fixed assets every 4 years.
C
The company has \$4 in fixed assets for every \$1 of net sales.
D
The company earns \$4 in net income for every \$1 of fixed assets.
Verified step by step guidance1
Understand the concept of the fixed asset turnover ratio: It measures how efficiently a company uses its fixed assets to generate net sales. The formula is Fixed Asset Turnover Ratio = Net Sales / Average Fixed Assets.
Analyze the given ratio of 4 times: This means that for every \$1 invested in fixed assets, the company generates \$4 in net sales.
Clarify the interpretation: The ratio does not indicate the replacement cycle of fixed assets, the proportion of fixed assets to net sales, or the net income generated per dollar of fixed assets. It strictly relates to net sales generated per dollar of fixed assets.
Compare the options provided: The correct interpretation aligns with the explanation that the company generates \$4 in net sales for every \$1 invested in fixed assets.
Conclude the reasoning: The fixed asset turnover ratio is a key efficiency metric, and the correct answer reflects the relationship between net sales and fixed assets investment.
2:26mWatch next
Master Ratios: Fixed Asset Turnover with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Ratios: Fixed Asset Turnover practice set
Problem sets built by lead tutorsExpert video explanations