Multiple Choice
XYZ Company had net sales of \$500,000 and COGS of \$320,000. If the beginning balance of Total Assets was \$300,000 and the ending balance in Total Assets was \$400,000, what is the Total Asset Turnover ratio?
14. Financial Statement Analysis
Ratios: Total Asset Turnover
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Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Which of the following is classified as an asset utilization ratio?
A
Debt-to-Equity Ratio
B
Current Ratio
C
Total Asset Turnover Ratio
D
Gross Profit Margin
Verified step by step guidance1
Understand the concept of asset utilization ratios: These ratios measure how efficiently a company uses its assets to generate revenue. They focus on the relationship between sales and assets.
Review the provided options: Debt-to-Equity Ratio, Current Ratio, Total Asset Turnover Ratio, and Gross Profit Margin. Determine which of these aligns with the definition of asset utilization ratios.
Analyze the Total Asset Turnover Ratio: This ratio is calculated as \( \text{Total Asset Turnover Ratio} = \frac{\text{Net Sales}}{\text{Average Total Assets}} \). It directly measures how effectively a company uses its assets to generate sales, making it an asset utilization ratio.
Compare the other options: Debt-to-Equity Ratio measures financial leverage, Current Ratio assesses liquidity, and Gross Profit Margin evaluates profitability. None of these focus on asset utilization.
Conclude that the Total Asset Turnover Ratio is the correct answer because it specifically evaluates the efficiency of asset usage in generating revenue.
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