Question

Samsung (Samsung.com), Apple, and Google are all competitors in the global marketplace. Comparative figures for these companies’ recent annual accounting periods follow.

Samsung

Apple

Google

	Current year	Prior year	Two-year prior	Current year	Prior year	Current year	Prior year
Total asset	W242,179,521	W230,422,958	W214,075,018	\(290,479	\)231,839	\(147,461	\)129,187
Net sale	200,653,482	206,205,987	228,692,667	233,715	182,795	74,989	66,001
Total asset turnover	?	?	-	0.89	0.83	0.54	0.55

Required

1. Compute total asset turnover for the most recent two years for Samsung using the data shown.
2. Which company is most efficient in generating net sales given the total assets it employs?

Short answer

1. Total asset turnover ratio is 0.85
2. Samsung is the most efficient in generating net sales

Step-by-step solution

Asset turnover ratio

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

$\mathit{t}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathbf{}\mathit{a}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathbf{}\mathit{t}\mathit{u}\mathit{r}\mathit{n}\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathbf{}\mathit{r}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathbf{=}\frac{\mathbf{n}\mathbf{e}\mathbf{t}\mathbf{}\mathbf{s}\mathbf{a}\mathbf{l}\mathbf{e}\mathbf{s}}{\mathbf{a}\mathbf{v}\mathbf{e}\mathbf{r}\mathbf{a}\mathbf{g}\mathbf{e}\mathbf{}\mathbf{t}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{a}\mathbf{s}\mathbf{s}\mathbf{e}\mathbf{t}}$

Computation of total asset turnover

Total asset turnover for the previous year

$averagetotalassets=\frac{214,075,018+230,422,958}{2}$

$averagetotalasset=\frac{444,497,976}{2}=222,248,988$

$\mathit{t}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathit{a}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathit{t}\mathit{u}\mathit{r}\mathit{n}\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathbf{=}\frac{\mathbf{206}\mathbf{,}\mathbf{205}\mathbf{,}\mathbf{987}}{\mathbf{222}\mathbf{,}\mathbf{248}\mathbf{,}\mathbf{988}}\mathbf{=}\mathbf{0}\mathbf{.92}$

Total asset turnover for the current year

$averagetotalasset=\frac{230,422,958+242,179,521}{2}$

$averagetotalasset=\frac{472,602,479}{2}=236,301,239.5$

$\mathit{t}\mathit{o}\mathit{t}\mathit{a}\mathit{l}\mathit{a}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathit{t}\mathit{u}\mathit{r}\mathit{n}\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathbf{=}\frac{\mathbf{200}\mathbf{,}\mathbf{653}\mathbf{,}\mathbf{482}}{\mathbf{236}\mathbf{,}\mathbf{301}\mathbf{,}\mathbf{239}\mathbf{.5}}\mathbf{=}\mathbf{0}\mathbf{.85}$

Samsung is the most efficient

Samsung is the most efficient in generating net salesgiven the total assets it employs. The total asset turnover of Samsung is higher than that of Apple and Google.