Question

(Chapter 3) Delfino's has a fixed asset turnover rate of 1.3 and a total asset turnover rate of 0.92. Frederick's has a fixed asset turnover rate of 1.2 and a total asset turnover rate of 1.03. Both companies have similar operations. Delfino's is:                                                                                  

Group of answer choices

utilizing its total assets more efficiently than Frederick's.

utilizing its fixed assets more efficiently than Frederick's.

generating $1 in sales for every $1.30 in net fixed assets.

generating $1.30 in net income for every $1 in net fixed assets.

more profitable than Frederick's.

Answer 1

Ans : Option B, utilizing its fixed assets more efficiently than Frederick's.

Fixed assets turnover ratio measures return on their investment in Property , plant and equipment. Similarly Total assets turnover ratio measures ability of generation of sales for each dollar of assets.

Explanation :

Total assets turnover ratio = Net sales / average total assets

Fixed assets turnover ratio = Net sales / average Fixed assets

For, Delfino's,

Total assets turnover ratio = 0.92

Fixed assets turnover ratio = 1.3

For Frederick's

Total assets turnover ratio = 1.03

Fixed assets turnover ratio = 1.2

From the concept of both ratios, and from given data.

Delfino's fixed assets ratio is more than Fredericks fixed asset ratio which means return is more from investment in PPE.

Fredericks total assets ratio is more than Delfinos total assets ratio which means for each dollar of assets it generates more sales.

From the options above, option B is correct.