Question

During 2015 Lopez Corporation reported net sales of $3,200,000 and net income of $1,200,000. Its balance sheet reported average total assets of $1,600,000. Calculate the asset turnover.

Answer 1

The asset turnover is 2.4 times.

Asset turnover  = Net sales \div Average total assets

Asset turnover  =  $3,000,000 \div [  $1,000,000 + $1,500,000 ] \div 2

Asset turnover  =  2.4 times

Asset turnover is the ratio of total sales or revenue to average assets. This metric helps investors understand how effectively companies are using their assets to generate revenue. Investors use asset turnover to compare similar companies in the same industry or group.

In the retail sector, an asset turnover of 2.5 or higher may be considered good, but in the utility sector, a company is more likely to aim for an asset turnover between his 0.25 and 0.5.

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