If a firms total asset turnover is higher than the industry

If a firm\'s total asset turnover is higher than the industry average, it indicates that the company is not generating a sufficient volume of business given its total asset investment. o True OFalse

Solution

Assets Turnover Ratio is the measurement of company’s efficiently to generate revenue using its total assets. Higher Total Assets Turnover Ratio indicates that the company is more systematic to produce proceeds.

Total Assets Turnover Ratio is computed dividing net sales with Average Total Assets.

Let’s take an example. If net sales is $10,000 and Average Total Assets is $ 1,000; Total Assets Turnover Ratio can be computed as:

Total Assets Turnover Ratio = Net Sales/ Average Total Assets

                                   = $ 10,000/$ 1,000

                                   =10 times

Meaning for every 1 $ invested, 10 $ revenue generating

If Industry average Total Assets Turnover Ratio is 9, means industry is able to generate 9$ for every one 1$ invested.

We are able to generate more than industry.

Hence option “False” is correct answer.