Question

The BobCat Inc. reported gross sales of $100,000, sales returns and allowances of $5,000, and sales discounts of $2,000. The company has $25,000 in tangible assets and $120,000 in average total assets. What is the company's asset turnover ratio

Answer 1

Answer:0.775 times

Explanation:

Given

Gross sales          100000

Sales returns             5000

Sales discounts         2000

Tangible assets        25000

Average total assets 120000

Calculation of assets turn over ratio

Assets turnover ratio = Net sales / Average total assets

=(100000-5000-2000)/120000

=0.775 times

Assets turnover ratio is 0.775 times

Gross sales is the sales made by the company but net sales is where the actual value of sales has happened after the rebates, allowances and discounts. Assets turn over ratio is used to measure the company's abilities to utilize its assets efficiently in generating sales income to the company.