1.To increase total asset turnover, management must either increase sales or red
ID: 2499281 • Letter: 1
Question
1.To increase total asset turnover, management must either increase sales or reduce total stockholders' equity.
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2.The formula for the average sale period is: Average sale period = Accounts receivable turnover ÷ Inventory turnover.
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3.The formula for the net profit margin percentage is: Net profit margin percentage = Net income ÷ Sales.
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4.Earnings per share is computed by multiplying net income by the average number of common shares outstanding.
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5.When computing the return on total assets, the interest expense is added back to net income to show what earnings would have been if the company had no debt.
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Explanation / Answer
Solution.
1. False
The total asset turnover ratio measures the ability of a company to use its assets to efficiently generate sales.
The calculation for the total asset turnover ratio is: Net Sales/Total Assets
To increase total asset turnover, management must either increase sales or reduce total assets.
2. False
Average sales Period = No. of days × Average net receivables / Net credit sales
3. True
The formula for net profit margin is:
(Total Revenue – Total Expenses)/Total Revenue = Net Profit/Total Revenue = NetProfit Margin
4. False
Coorect formula is = Net income Divided by noumber of share outstanding.
5. True
The calculation of the return on total assets is earnings before interest and taxes (EBIT), divided by the total assets figure listed on the balance sheet. The EBIT figure is used instead of net profits in order to focus attention on operating earnings.
The formula is: Earnings before interest and taxes / Total assets
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