Question

In 20X2, sales increased to \(5,740,000 and the assets for that year were as follows:

Cash	\)163,000
Accounts receivable	924,000
Inventory	1,063,000
New plant and equipment	520,000
Total assets	$2,670,000

Once again compute the four ratios

b. Compute the following:

1. Accounts receivable turnover.

2. Inventory turnover.

3. Fixed asset turnover.

4. Total asset turnover.

Short answer

Account receivable turnover	6.21
Inventory turnover	5.40
Fixed assets turnover	11.04
Total assets turnover	2.15

Step-by-step solution

Account receivable turnover 

$\begin{array}{rcl}\mathrm{Account}\mathrm{receivable}\mathrm{turnover}& =& \frac{\mathrm{Net}\mathrm{credit}\mathrm{sales}}{\mathrm{Average}\mathrm{accounts}\mathrm{receivables}}\\ & =& \frac{\$5,740,000}{\$924,000}\\ & =& 6.21\end{array}$

Inventory turnover 

$\begin{array}{rcl}\mathrm{Inventory}\mathrm{turnover}& =& \frac{\mathrm{Sales}}{\mathrm{Inventory}}\\ & =& \frac{\$5,740,000}{\$1,063,000}\\ & =& 5.40\end{array}$

Fixed assets turnover 

$\begin{array}{rcl}\mathrm{Fixed}\mathrm{asset}\mathrm{turnover}& =& \frac{\mathrm{Sales}}{\mathrm{Fixed}\mathrm{assets}}\\ & =& \frac{\$5,740,000}{\$520,000}\\ & =& 11.04\end{array}$

Total assets turnover

$\begin{array}{rcl}\mathrm{Total}\mathrm{asset}\mathrm{turnover}& =& \frac{\mathrm{Sales}}{\mathrm{Total}\mathrm{assets}}\\ & =& \frac{\$5,740,000}{\$2,670,000}\\ & =& 2.15\end{array}$