Question

All State Trucking Co. has the following ratios compared to its industry for last year:

	Allstate trucking	Industry
Return on sales	3%	8%
Return on assets	15%	10%

Explain why the return-on-assets ratio is so much more favorable than thereturn-on-sales ratio compared to the industry. No numbers are necessary;a one-

sentence answer is all that is required.

Short answer

All-State Trucking Co. has a higher asset turnover ratio than the industry.

Step-by-step solution

Calculating the Asset Turnover Ratio with Return on Assets and Return on Sales

The asset turnover ratio is the ratio between a company's sales and total assets (Net sales/Total Assets). It indicates how well the company is converting its resources into revenue.

By dividing Return on Sales by Return on Assets, we have:

Allstate Trucking Co.'s Asset Turnover Ratio

Industry's Asset Turnover Ratio