Assume that the company currently has net sales of $80, and that it is planning an expansion that will increase net sales by $28. To accomplish this expansion, company must increase its average total assets from $50 to $60
Part 1 ---Compute the company's total asset turnover under (a) current conditions and (b) proposed conditions.
current condition is 1.6
proposed is 1.8
I go this part but stock with next one
Evaluate and comment on the merits of the proposal given your analysis in part 1. Identify any concers you would express about the proposal
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asset turnover=sales divide by total assets
The amount of sales or revenues generated per dollar of
assets. The Asset Turnover ratio is an indicator of the efficiency with
which a company is deploying its assets.
Basically the higher the ratio, the better it is,as this indicates that the company is generating more revenues per dollar of assets.
But since this ratio varies widely from one industry to the another,
comparisons are only valid when they are made for different
companies in the same sector.
The Asset Turnover ratio is also a key component of DuPont Analysis,
which breaks down Return on Equity into three parts, the other two being
profit margin and financial leverage.
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