   Chapter 6, Problem 6.8APE

Chapter
Section
Textbook Problem

Asset turnoverFinancial statement data for years ending December 31, 2019 and 2018, for latchkey Company follow:   2019 2018 Sales $1,734,000$1,645,000 Total assets:     Beginning of year 480,000 460,000 End of year 540,000 480,000 a.    Determine the asset turnover for 2019 and 2018.b.    Does the change in the asset turnover from 2018 to 2019 indicate a favorable or an unfavorable trend?

a.

To determine

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:

Assetturnover=NetrevenueAverage total assets

To Determine: The asset turnover for 2019 and 2018 for Company L.

Explanation

Calculate the asset turnover for 2019.

Sales/ net revenue = $1,734,000 Average total assets =$510,000 (1)

Assetturnover=NetrevenueAverage total assets=$1,734,000$510,000=3.4

Working Notes:

Calculate the average total assets.

Beginning assets = $480,000 Ending assets =$540,000

Averagetotalassets=Beginningassets+Endingassets2=$480,000+$540,0002=\$510,000 (1)

Calculate the asset turnover for 2018

b.

To determine

To Comment: Whether the change in the asset turnover from 2018 to 2019 indicate a favorable or an unfavorable trend.

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