Question

When using the asset turnover ratio, which of the following is true? a.The ratio measures how effectively a business is using its assets to generate sales. b.The assets used in computing this ratio may be the average of monthly assets. c.A high ratio indicates an effective use of assets. d.All of these choices are true.

Answer 1

Answer:

a business is using its assets to generate sales.

Explanation:

The formula to compute the asset turnover ratio is shown below:

Asset turnover ratio = Net sales ÷ average total assets

where,

Average total assets = (Opening balance of assets + ending balance of assets) ÷ 2

And, the net sales = sales revenue - sales discounts - sales returns

Thus,  option A is correct and the rest options are wrong