Question

During 2014, phelps corporation reported net sales of $3,000,000, net income of $1,320,000, and depreciation expense of $80,000. phelps also reported beginning total assets of $1,000,000, ending total assets of $1,500,000, plant assets of $800,000, and accumulated depreciation of $500,000. phelps's asset turnover ratio is

Answer 1

Calculation of Phelps's asset turnover ratio:

The asset turnover ratio can be calculated using the formula as follows:

Asset turnover ratio =  Net Sales / Average Total Assets

Net Sales is given $3,000,000

And the Average Total Assets can be calculated as follows:

Average Total Assets = (Beginning total assets + Ending total assets ) / 2 = (1,000,000+1,500,000)/2 = $1,250,000

Hence, Asset turnover ratio = 3,000,000 / 1,250,000 = 2.4 times