Question

Question text Consider two companies (A and B) with equal profit margins of 18%. Company A has an asset turnover of 1.2 and Company B has an asset turnover of 1.5. If all else is equal, Company B with its’ higher asset turnover, is less profitable because it requires more revenue to turn its assets over. Select one: True False

Answer 1

The above statement that if all else is equal, Company B with its’ higher asset turnover, is less profitable because it requires more revenue to turn its assets over is false.

Explanation
This is because any company having higher asset turnover means the company is performing very well and there are very good profits.
Asset turnover ratio is a ratio among assets and turnover of the company.

It is true that company requires more revenue to turn its assets over if the company is having higher asset turnover but considering it less profitable is not true.
The company is always more profitable if it have higher asset turnover if considering among two companies with equal profit margins.

Hence, Considering two companies (A and B) with equal profit margins of 18%. Company A has an asset turnover of 1.2 and Company B has an asset turnover of 1.5. If all else is equal, Company B with its’ higher asset turnover, is less profitable because it requires more revenue to turn its assets over is a false statement.