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AccountingFinancial And Managerial Accounting15th Edition
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Asset turnover ratio Financial statement data for years ended December 31, 20Y3 and 20Y2, for Edison Company follow: a. Determine the asset turnover ratio for 20Y3 and 20Y2. b. Is the change in the asset turnover ratio from 20Y2 to 20Y3 favorable or unfavorable?

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 5, Problem 7BE
Textbook Problem
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Asset turnover ratio

Financial statement data for years ended December 31, 20Y3 and 20Y2, for Edison Company follow:

Chapter 5, Problem 7BE, Asset turnover ratio Financial statement data for years ended December 31, 20Y3 and 20Y2, for Edison

a.    Determine the asset turnover ratio for 20Y3 and 20Y2.

b.    Is the change in the asset turnover ratio from 20Y2 to 20Y3 favorable or unfavorable?

a.

To determine

Determine the asset turnover for 20Y3 and 20Y2 for Company E.

Explanation of Solution

Asset turnover ratio is used to determine the efficiency of the company towards use of asset towards generation of sales. The formula to calculate asset turnover is given below:

  Asset turnover = Net revenueAverage total assets

Given information for 20Y3:

Sales/ net revenue = $1,884,000

Beginning assets = $770,000

Ending assets = $800,000

First, calculate the average total assets for 20Y3.

Average total assets = Beginning assets + Ending assets2= $770,000 + $800,0002= $785,000

Now, calculate the asset turnover for 20Y3.

Asset turnover = Net revenueAverage total assets= $1,884,000$785,000= 2

b.

To determine

Comment whether the change in the asset turnover from 20Y2 to 20Y3 indicate a favorable or an unfavorable trend.

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