ExpertMedium2 marksShort Answer
ACCA · Question 31 · Interpretation of Financial Statements
Section A
A company has Revenue of $800,000, Gross Profit of $300,000, and Operating Profit of $120,000. Total Assets are $650,000 and Current Liabilities are $150,000.
Calculate the Asset Turnover ratio. (Enter the number only, rounded to one decimal place, e.g., 1.5)
Section A
A company has Revenue of $800,000, Gross Profit of $300,000, and Operating Profit of $120,000. Total Assets are $650,000 and Current Liabilities are $150,000.
Calculate the Asset Turnover ratio. (Enter the number only, rounded to one decimal place, e.g., 1.5)
How to approach this question
Asset Turnover = Revenue / Capital Employed. Capital Employed = Total Assets - Current Liabilities.
Full Answer
Capital Employed = Total Assets ($650,000) - Current Liabilities ($150,000) = $500,000.
Asset Turnover = Revenue / Capital Employed = $800,000 / $500,000 = 1.6 times.
Common mistakes
Using Gross Profit or Operating Profit instead of Revenue, or using Total Assets without deducting Current Liabilities.
Practice the full ACCA FA — Financial Accounting Practice Exam 5
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