Answered: The ABC Corporation has a profit margin…

The ABC Corporation has a profit margin on sales below the industry average, yet its ROA is above the industry average. What does this imply about its asset turnover?

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter7: Operating Assets

Section: Chapter Questions

Problem 12MCQ: Which of the following statements is true? a. The fixed asset turnover ratio assists managers in...

See similar textbooks

Related questions

Q: Which of the following statements is CORRECT? O The more depreciation a firm reports, the higher its…

A: Depreciation means reduction in value of fixed assets over the period of time. It is for normal wear…

Q: One of the indirect costs of financial distress is having to sell assets at lower than market value.…

A: Indirect costs of financial distress is not the directly present cost in the financial statements…

Q: A company that finances a relatively large portion of its assets with liabilities is said to have a…

A: Leverage: Leverage is a method of using of debt in an efficient way so that it can be used to…

Q: Last year, Beecher Manufacturing had a 12.5% ROA, net income of $800,000, and net sales of…

A: Formula: Return on assets (ROA) = Net income / Average assets Asset turnover ratio = Net sales /…

Q: Is it true that the book value of a company equals the value or it's assets according to their…

A: Book value of the firm is the value of its liquidating i.e the total amount when its assets are sold…

Q: Jordan’s response about the eff ect of Beta’s impairment loss is most likely incorrect withrespect…

A: Impairment losses decrease the value of the asset. Therefore, asset will be reported at the lower…

Q: Based on the information above, what is Total Asset Turnover Ratio of ratio of the firm? Group of…

A: Total asset turnover ratio: It refers to the tool used to measure that how efficiently company is…

Q: Which of the following statements is CORRECT? а. Since accounts payable and accrued liabilities must…

A: Option B: Suppose a firm is operating its fixed assets at below 100% of capacity, but it has no…

Q: Use the following selected balance sheet and income statement information for Stevens Co. to…

A: Asset turnover = Net sales/Average total assets

Q: Two firms- A and B- have same cash conversion cycle. But firm A have poor inventory conversion…

A: CCC stands for Cash Conversion Cycle is defined as the metric which states the time it requires the…

Q: The DuPont system of analysis allows firms to break down their return on equity down into all of the…

A: Dupont analysis is very important analysis being performed in business. This shows return on equity…

Q: Explain intuitively how a manager could tweak the salvage value of machinery to benefit from an…

A: Salvage value:- The estimated resale worth of an item at the end of its useful life is known as…

Q: How does Fixed Asset and Total Asset turnover determine a firm's financial profitability? What…

A: The question is using the ratio analysis and its application in the financial performance analysis…

Q: Is it true that A high return on assets (Ropa) is an indication that a firm has a high level/value…

A: ROA shows how profitable a company is with respect to it sassets. formula: ROA = NET INCOMETOTAL…

Q: Constantine Corporation has net income of P11.44 million and net revenue of P80 million in 2012. Its…

A: Average total assets = Beginning total assets + Ending total…

Q: Company X is competing with company Y. These are their ratios: x y Current Ratio = .223 Current…

A: Current Ratio It is an accounting ratio which measures the company's ability to pay short term debt…

Q: Bulldogs Inc. has a total asset and total sales of P1,500,000 and P4,500,000, respectively. If the…

A: Answer: Calculation of the return on asset (ROA): Return on assets is a profitability ratio that…

Q: Which of the following statements is correct? Statement 1. Asset utilization ratios describe how…

A: Assets can be defined as the objects which are held by a firm for the purpose of generating future…

Q: Defi ning total asset turnover as revenue divided by average total assets, all else equal,…

A: When a company acquires an asset, it records the asset at its historical cost in the balance sheet…

Q: If your goal is to determine how effective a firm in managing its assets, you would examine O Profit…

A: If the goal is to determine firms effectiveness in managing assets, asset management ratios should…

Q: When a value of a company declines because of currency depreciation, it is called a. Transaction…

A: Solution Concept a. Transaction exposure The risk that for the transaction undertaken the company…

Q: Walter Industries has $5 billion in sales and $1.7 billion in fixed assets. Currently, the company’s…

A: The question is based on the concept of ratio analysis. The ratio of sales and asset has been used…

Q: The Zone, Inc. has an ROE of 0.10, no debt, and a Total Asset Turnover of 2.8x. What is the Zone's…

A: Net profit margin is a measure of the profitability of a company. Days' Sales in Inventory is the…

Q: Which of the following statements is true? a.The tangible capital asset turnover ratio assists…

A: Depreciation is a reduction in the value of assets due to the usage of that asset. We can evaluate…

Q: In the extractive industries, businesses may pay dividendsin excess of net income. What is the…

A: Dividends: This is the amount of cash distributed to stockholders by a company out its earnings,…

Q: Which asset liability combination would result in the firm having the highest risk of insolvency? A.…

A: SOLUTION INSOLVENCY MEANS WHEN AN INDIVIDUAL OR COMPANY CAN NO LONGER MEET THEIR FINANCIAL…

Q: What does the current ratio inform you about a company? A. The efficient use of assets. B. The…

A: Current Ratio : The current ratio is the relation between the current assets and current liabilities…

Q: Question :- Can the financial health of a firm be based off of one ratio? Why or why not? How do you…

Q: In comparing the current ratios of two companies, why is it invalid to assume that the company with…

A: Current ratio: The financial ratio which evaluates the ability of a company to pay off the debt…

Q: Defi ning total asset turnover as revenue divided by average total assets, all else equal,…

A: The term asset turnover refers to the ratio of sales revenue to average of assets. This ratio is…

Q: Walter Industries has $5 billion in sales and $1.7 billion in fixed assets. Currently, the company’s…

A: Assets mean something that makes income to the investor in a future period. The investor can make…

Q: A firm's market-to-book ratio might be greater than 1.0 due to accounting reasons. An example of an…

A: Please find the answer to the above question below:

Q: Silas 4-Wheeler, Inc. has an ROE of 18.72 percent, equity multiplier of 2.00, and a profit margin of…

A: ROE= 18.72 percent Equity multiplier= 2.00 Profit margin= 18.00 percent Total asset turnover and the…

Q: Firms with valuable intangible assets are more likely to show a(n): excess of market value over book…

A: Intangible assets are those assets which can not seen or touched. These can only be felt.

Q: Firm may invest heavily, but that investment while producing earnings may not add value if operating…

A: The objective of establishing a company is to earn profits and grow wealth by selling one or a…

Q: Assume an income statement with the following classifications: a. Revenues b. Cost of goods sold c.…

A: Step 1 An income statement is a financial statement that depicts profitability of business over a…

Q: Which of the following statements is the most reasonable conclusion from the given information below…

A: Return on assets indicates that how much is the company is profitable regarding it's assets, it…

Q: Which of the following are not part of the components ofthe DuPont system for measuring and…

A: DuPont system is used to measure the return on the equity.

Q: Bulldogs Inc. has a total asset and total sales of P1,500,000 and P4,500,000, respectively. If the…

A: Net income = sales revenue x 4% = P4,500,000 x 4% = P180,000

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

The ABC Corporation has a profit margin on sales below the industry average, yet its ROA is above the industry average. What does this imply about its asset turnover?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

The firm's asset turnover measures A) the value of assets held per dollar of shareholder equity. B) the return the firm has earned on its past investments. C) the firm's ability to sell a product for more than the cost of producing it. D) how efficiently the firm is utilizing its assets to generate sales.
10) The DuPont formula allows a firm to break down its return into the net profit margin, which measures the firm's profitability on sales, and its total asset turnover, which indicates how efficiently the firm has used its assets to generate sales. TRUE FALSE? (Please show work and explain)
Under the Dupont Technique, which of the following is false? -Asset management, as represented by the ratio of net sales and average equity, is one of the factors that is considered in deriving the return on assets. -Dupont Technique reveals the factors that determines the firm’s return on asset. -The Company’s assessment of asset utilization and profitability can be determined by the Dupont Technique. -The return on asset is the computed by multiplying the return on sales and the asset turnover.
A firm with a below industry net profit margin can improve its return on total assets by: a. increasing its current ratio c. decreasing its fixed asset turnover b. decreasing its total asset turnover d. increasing its total asset turnover
Question :- Can the financial health of a firm be based off of one ratio? Why or why not? How do you calculate Asset Turnover?
Which of the following statements is true? a. The fixed asset turnover ratio assists managers in determining the estimated future capital expenditures that are needed. b. The average age of the fixed assets is computed by dividing accumulated depreciation by depreciation expense. c. If net sales increases, the fixed asset turnover ratio will decrease. d. A relatively low fixed asset turnover ratio signals that a company is efficiently using its assets.
Which of the following transactions would not increase the fixed asset turnover ratio? Group of answer choices A)An increase in sales revenue. B)A profitable sale of fixed assets for cash. c)Selling manufacturing equipment for a loss. d)A decrease in operating expenses. E)All of the above would increase the fixed asset turnover ratio
Company A has a higher Asset Turnover than Company B. Which of the following statements is true regarding these two companies? Company A has higher sales than Company B. Company A is more efficient in using its assets to produce sales than Company B. Company A has fewer assets than Company B.
How might the different ages of firms distort comparisons of their fixed assets turnover ratios?
Whats is the effect of increasing the asset turnover (ATO) on enterprise price-to-book value, holding all else constant? Kindly answer the above question with an introduction and conclusion based on the concept of the question. Explain the answer properly considering the accounting aspect of it.
Under the Dupont Technique, which of the following is false? a. Dupont Technique reveals the factors that determines the firm’s return on asset. b. Asset management, as represented by the ratio of net sales and average equity, is one of the factors that is considered in deriving the return on assets. c. The Company’s assessment of asset utilization and profitability can be determined by the Dupont Technique. d.The return on asset is the computed by multiplying the return on sales and the asset turnover.
One of the indirect costs of financial distress is having to sell assets at lower than market value. Using examples explain what this is and how it could effect the value of a firm.