Question

In each case, choose the firm that you expect to have the higher asset turnover ratio. (Hint: think about the likely nature of each firm’s business model. For example, would the firm require a lot or a little capital? Would it strive for high sales or high profit margins?) (LO4-3) a. Economics Consulting Group or Home Depot b. Catalog Shopping Network or Gucci c. Electric Utility Co. or Standard Supermarkets

Answer 1

Answer:

Asset Turnover ratio = Net Sales/ Average Total Assets

a. Economics Consulting Group or Home Depot.

Home Depot has more physical assets than the Economic Consulting group which has its main assets as its employees which cannot be recorded as values in the balance sheet. ECG will therefore have more sales to assets and a higher Asset Turnover ratio.

b. Catalog Shopping Network or Gucci.

Catalog Shopping conducts its business mainly online or rather without using stores which means they will not hold as much physical inventory. This is different from Gucci which will hold inventory as well as have stores and the like. They will have more assets than Catalog Shopping Network which will give Catalog a higher Asset Turnover.

c. Electric Utility Co. or Standard Supermarkets.

Electric Utility Co. as an electric provider will have a high amount of assets as the nature of their business demands this. Supermarkets in comparison have less assets and so this will give them a higher Asset Turnover ratio.