Question

Aneko Company reports the following (\(000s): net sales of \)14,800 for 2017 and \(13,990 for 2016; end of-year total assets of \)19,100 for 2017 and $17,900 for 2016. Compute its total asset turnover for 2017, and assess its level if competitors average a total asset turnover of 2.0 times.

Short answer

The total asset turnover for 2017 is 0.8. Aneko Company isn’t doing well because its asset turnover ratio is less than its competitors.

Step-by-step solution

Asset turnover ratio

An asset turnover ratio is a profitability ratio. It measures how efficiently a company uses their assets to generate sales.

Formula of asset turnover ratio

$\mathbf{Total}\mathbf{}\mathbf{asset}\mathbf{}\mathbf{turnover}\mathbf{}\mathbf{ratio}\mathbf{=}\frac{\mathbf{net}\mathbf{}\mathbf{sales}}{\mathbf{average}\mathbf{}\mathbf{total}\mathbf{}\mathbf{asset}}\mathbf{.}$

Solution

$\mathrm{Total}\mathrm{asset}\mathrm{turnover}\mathrm{ratio}=\frac{\mathrm{net}\mathrm{sale}\mathrm{of}2017}{\mathrm{average}\mathrm{total}\mathrm{asset}}$

$\begin{array}{rcl}\mathit{A}\mathit{v}\mathit{e}\mathit{r}\mathit{a}\mathit{g}\mathit{e}\mathbf{}\mathit{t}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{a}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathit{s}& \mathbf{=}& \frac{\mathbf{a}\mathbf{s}\mathbf{s}\mathbf{e}\mathbf{t}\mathbf{s}\mathbf{}\mathbf{}\mathbf{i}\mathbf{n}\mathbf{}\mathbf{}\mathbf{2016}\mathbf{+}\mathbf{a}\mathbf{s}\mathbf{s}\mathbf{e}\mathbf{t}\mathbf{s}\mathbf{}\mathbf{}\mathbf{i}\mathbf{n}\mathbf{}\mathbf{2017}}{\mathbf{2}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \frac{\mathbf{\$}\mathbf{17}\mathbf{,}\mathbf{900}\mathbf{+}\mathbf{\$}\mathbf{19}\mathbf{,}\mathbf{100}}{\mathbf{2}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \frac{\mathbf{\$}\mathbf{37}\mathbf{,}\mathbf{000}}{\mathbf{2}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \mathbf{\$}\mathbf{18}\mathbf{,}\mathbf{500}\mathbf{.}\end{array}$

$\begin{array}{rcl}Totalassetturnoverratio& =& \frac{\$14,800}{\$18,500}\\ & =& 0.8.\\ & & \end{array}$