Problem: Jim Short’s Company makes clothing for schools. Sales in 2007 were $4,000,000. Assets were as follows:
Cash $100,000
Accounts receivable $800,000
Inventory $400,000
Net plant and equipment $500,000
Total Assets $1,800,000
a) Compare the following:
1. Accounting receivable turnover
2. Inventory turnover
3. Fixed asset turnover
4. Total asset turnover
b) In 2008, sales increased to $5,000,000 and the assets for that year were as follows:
Cash $100,000
Accounts receivable $900,000
Inventory $975,000
Net plant and equipment $500,000
Total Assets $2,525,000
Once again, compute the four ratios.
c) Indicate if there is an improvement or decline in total asset turnover and based on the other ratio, indicate why this development has taken place.