Activity 8 RATIO ANALYSIS Asset Turnover Purpose: Understand the information provided by the asset turnover ratio. Identify the expected range and whether an increasing or decreasing trend is preferred The asset turnover ratio compares net sales to total assets. This ratio evaluates how efficiently assets are used to produce net sales. It is one measure of sales volume. It is measure of profitability ASSET TURNOVER- Net sales Average total assets 1. Average total assets -[(beginning assets + ending assets)/2). 12/31/98 assets are the ending assets of (1998/1999) and the beginning assets of (1998/1999). GENERAL MOTORSOM (5 in 0003) GAP INC ORACLE HOME DEPOT he Landt 59054462 fyn 12/31198 $161315.000 fyn 121/99 530.219.000 fya 5211/99 $8.8272192 Netsales 120/90 $3.963.919 1229 $257 289.000 101/99 $13.465.000 521/99 57.239.654 Total nuet 1271/97 $231.272.000 161/98 $11.229.000 5/21/98 $5.819011 1101/08 Total assets 53337502 Sowe: Disclosure, Inc., Come DSBC, 2000, 2. For each company listed above, compute the average total assets for the most recent fiscal year. Record your results below (in 000s). Average total assets: SEKSOZIL $ 3. For each company listed above, compute the asset tumover ratio. Record your results below. Asset turnover ratio: 4. The asset turnover ratios computed above are primarily in the range (less than 1/1 through 37 more than 3). 5. The corporation with the strongest asset turnover ratio is (Gap Inc/GM/ Home Depot / Oracle). 6. For the asset turnover ratio, an increasing / decreasing) trend is favorable and indicates effoctive use of assets to produce net sales. 7. Home Depot makes profits by generating a large volume of sales on items with low prices. The asset turnover ratio is one measure of sales volume. Therefore, the asset turnover ratio for Home Depot is expected to be relatively (high/low). & Forme Magazine rated (Gap Inc/GM/ Home Depot / Oracle) Number 1, indicating it is the largest corporation in the United States. Page 10 Introduction