Question

A firm's total equity is $10 million and total liabilities is $5 million. During the year, its sales equaled to $75 million. Based on the given information, the total assets turnover ratio of the firm is:

Answer 1

Answer:

5 times

Explanation:

The formula and the computation of the total asset turnover is shown below:

As we know that

Total asset turnover = (Sales) ÷ (Total assets)

The sales = $75 million

And, the total assets equal to

= Total equity + total liabilities

= $10 million + $5 million

= $15 million

For computing the total assets value, we applied the accounting equation

So, the total asset turnover is

= $75 million ÷ $15 million

= 5 times