A company had net sales of $1,540,500 in Year 1 and $1,495,000 in Year 2. Its average assets were $810,000 for Year 1 and $800,000 for Year 2. (1) Calculate the total asset turnover for each year. (2) Interpret and comment on the company's efficiency in the use of its assets.
What will be an ideal response?
Year 1: $1,540,500/$810,000 = 1.90
Year 2: $1,495,000/$800,000 = 1.87
Interpretation: For every dollar in assets in Year 1, the company generated $1.90 in net sales. In Year 2 it generated $1.87 in net sales for every dollar of assets. Over the two-year period the company reduced its efficiency in the use of its assets to generate net sales.
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