Question

Indicate if there is an improvement or decline in total asset turnover, and based on the other ratios, indicate why this development has taken place.

Short answer

There is a decline in total assets turnover from 2.43 to 2.15. This development has taken place because of the slowdown in the inventory turnover ratio (11.73% to 5.40%). The other two ratios (i.e. account receivable turnover ratio and fixed assets turnover ratio) are slightly improved.

Step-by-step solution

Comparison of Total asset turnover ratio

	20X1	20X2
Total asset turnover ratio	2.43	2.15

$\mathrm{Asset}\mathrm{turnover}=\frac{\mathrm{Net}\mathrm{sales}}{\mathrm{Total}\mathrm{assets}}$

The total assets turnover ratio of the company has decreased in 20X2 in comparison to the Year 20X1 due to a less increase in sales in comparison to total assets.

Comparison of Inventory turnover 

	20X1	20X2
Inventory turnover ratio	11.73%	5.40%

The Inventory turnover ratio of the company has also decreased in 20X2 in comparison to 20X1 due to less increase in sales in comparison to inventory.