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When using the asset turnover ratio, which of the following statements is not true?

A. The assets used in computing this ratio may be the average of monthly assets.
B. Using this ratio compared to suppliers may be beneficial in interpreting the business's use of assets.
C. A high ratio indicates an effective use of assets.
D. The asset turnover ratio measures how effectively a business is using its assets to generate sales.

Sagot :

GinnyAnswer

Final answer:

The asset turnover ratio evaluates asset efficiency in generating sales, with monthly or ending asset balances being used in its computation. Comparing this ratio to suppliers is not beneficial. A high ratio signifies effective asset utilization.


Explanation:

Option b is not true when using the asset turnover ratio. Comparing this ratio to suppliers is not beneficial; instead, it is typically compared to industry averages or historical performances to assess the business's asset efficiency.

The asset turnover ratio measures how well a company utilizes its assets to generate sales. A high ratio indicates effective asset utilization, where each dollar of assets generates more revenue.

It is important to note that the assets used in computing the ratio can be either the ending balance or the average of monthly assets, depending on the analyst's preference and the specific financial analysis needs.


Learn more about Asset Turnover Ratio here:

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