Q9-6TI

Question

Maxim Company reported beginning and ending total assets of $140,000 and $160,000, respectively. Its net sales revenue for the year was $240,000. What was Maxim’s asset turnover ratio?

Step-by-Step Solution

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Answer

Answer

Maxim’s asset turnover ratio is 1.6 times.

1Step 1: Meaning of Asset turnover Ratio

The asset turnover ratio states how much a company can generate net sales revenue by using the total assets of the business.

2Step 2: Calculation of Asset turnover ratio

$A s s e t t u r n o v e r r a t i o = \frac{N e t s a l e s r e v e n u e}{A v e r a g e t o t a l a s s e t s} = \frac{$ 240, 000}{$ 150, 000} = 1.6 t i m e s$

$A v e r a g e t o t a l A s s e t s = \frac{A s s e t s a t t h e b e g e n n i n g + A s s e t s a t t h e e n d}{2} = \frac{$ 140, 000 + $ 160, 000}{2} = $ 150, 000$

$A s s e t t u r n o v e r r a t i o = \frac{N e t s a l e s r e v e n u e}{A v e r a g e t o t a l a s s e t s} = \frac{$ 240, 000}{$ 150, 000} = 1.6 t i m e s$

$A v e r a g e t o t a l A s s e t s = \frac{A s s e t s a t t h e b e g e n n i n g + A s s e t s a t t h e e n d}{2} = \frac{$ 140, 000 + $ 160, 000}{2} = $ 150, 000$

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