Question

A fixed asset turnover ratio of 0.72 means that:

	A.	For every $1 in net fixed assets, a firm can generate $0.72 in net income.
	B.	For every $1 in net fixed assets, a firm can generate $0.72 in sales.
	C.	For every $1 in total assets, a firm can generate $0.72 in net income.
	D.	For every $1 in net fixed assets, a firm can borrow $0.72.
	E.	For every $1 in total assets, a firm can generate $0.72 in sales.

Answer 1

A fixed asset turnover ratio of 0.72 means that:

"B. For every $1 in net fixed assets, a firm can generate $0.72 in sales."

Note:

1) Formula of Fixed asset turnover = Net Sales / Net Fixed assets

So, if the net sales is $0.72 and Net fixed assets is $1 then fixed asset turnover will be 0.72.

2) Net fixed assets = Tota assets - Accumulated Depreciation.