Asked by Taylor Giardinelli on May 12, 2024
Verified
A firm has a higher asset turnover ratio than the industry average, which implies
A) the firm has a higher P/E ratio than other firms in the industry.
B) the firm is more likely to avoid insolvency in the short run than other firms in the industry.
C) the firm is more profitable than other firms in the industry.
D) the firm is utilizing assets more efficiently than other firms in the industry.
E) the firm has higher spending on new fixed assets than other firms in the industry.
Asset Turnover Ratio
A financial ratio that measures the efficiency of a company's use of its assets to generate sales or revenue.
Industry Average
A benchmark or average measurement of performance or financial metrics within a particular industry sector.
Insolvency
A financial state in which an entity can no longer meet its debt obligations, leading to legal consequences such as bankruptcy.
- Identify and work out various financial ratios denoting liquidity, profitability, and the management of assets.
- Examine the effects of financial ratios on a corporation's effectiveness in relation to average industry standards.
Verified Answer
JJ
Jacory JurdenMay 18, 2024
Final Answer :
D
Explanation :
The asset turnover ratio measures how efficiently a firm uses its assets to generate sales, so a higher ratio indicates more efficient use of assets compared to the industry average.
Learning Objectives
- Identify and work out various financial ratios denoting liquidity, profitability, and the management of assets.
- Examine the effects of financial ratios on a corporation's effectiveness in relation to average industry standards.