Q14SE - Horngren'S Financial And Managerial Accounting

Question

Computing the asset turnover ratio Biagas, Inc. had net sales of \(55,600,000 for the year ended May 31, 2018. Its beginning and ending total assets were \)52,800,000 and $98,500,000, respectively. Determine Biagas’s asset turnover ratio for year ended May 31, 2018.

Step-by-Step Solution

Answer

Asset turnover ratio is 0.7349.

Step 1 Meaning of Asset Turnover Ratio

Asset Turnover ratio defines as its measures the amount of net sales generated for each average dollar with the amount of total assets which have been invested.

Step 2: Calculation of Asset turnover ratio for year ended May 31 st , 2018

$\begin{array}{c}\mathrm{Asset} \mathrm{turnover} \mathrm{ratio}=\frac{\mathrm{Net} \mathrm{sales} \mathrm{revenue}}{\mathrm{Average} \mathrm{total} \mathrm{assets}}\\ =\frac{\mathrm{\$}55,600,000}{\frac{\mathrm{\$}52,800,000+\mathrm{\$}98,500,000}{2}}\\ =\frac{\mathrm{\$}55,600,000}{\mathrm{\$}75,650,000}\\ =0.7349\end{array}$