Asked by Rafaiel Ghazaryan on May 10, 2024
Verified
A firm has a lower asset turnover ratio than the industry average, which implies
A) the firm has a lower P/E ratio than other firms in the industry.
B) the firm is less likely to avoid insolvency in the short run than other firms in the industry.
C) the firm is less profitable than other firms in the industry.
D) the firm is utilizing assets less efficiently than other firms in the industry.
E) the firm has lower spending on new fixed assets than other firms in the industry.
Asset Turnover Ratio
A measure of how efficiently a company uses its assets to generate sales revenue.
Industry Average
A benchmark or mean performance metric that represents the average outcome or status within a particular industry sector.
Insolvency
The condition of being unable to pay debts as they fall due, often leading to bankruptcy proceedings.
- Uncover and gauge diverse financial ratios conveying liquidity, profitability, and the application of assets.
- Review the significance of financial ratios for a business's performance in comparison with industry averages.
Verified Answer
JV
Jenna Van Der HulstMay 17, 2024
Final Answer :
D
Explanation :
A lower asset turnover ratio indicates that a firm is not generating as much revenue per dollar of assets as other firms in the industry, suggesting less efficient use of assets rather than directly implying profitability, insolvency risk, P/E ratio, or spending levels on fixed assets.
Learning Objectives
- Uncover and gauge diverse financial ratios conveying liquidity, profitability, and the application of assets.
- Review the significance of financial ratios for a business's performance in comparison with industry averages.