Finance in Action $-$ Ratio Analysis

If Target is making fewer credit sales because management is concerned about

future economic conditions and

preventing

$\_$ defaults and unrecoverable accounts receivable, then this finding could reflect favorably in your assessment of

management's performance.

On the other hand, if credit sales are declining because sales associates in the company's stores are failing to encourage customers to open new

Target credit cards, then this isn't a favorable behavior because the company may be

earned interest income.

opportunities for greater future sales and

Which statement addressing Target's fixed asset turnover ratios or its component accounts is correct?

Target's fixed asset turnover ratio should be computed using the total historical cost of its fixed assets, which means that the ratio should

not reflect the accumulated depreciation, or age, of its fixed assets.

The reason why the fixed asset turnover ratio increases from $2009$ to $2010$ is that the Sales account increases by $3\mathrm{.}71\%,$ while the Net

fixed asset account increases by only $0\mathrm{.}84\%.$

In general, a higher, rather than a lower, fixed asset turnover ratio will reflect

on management's performance. However, the practice

of generating ever$-$greater sales dollars using the same stock of property, plant, and equipment can be taken to extreme. Which practice would

increase a company's fixed asset turnover ratio to the detriment of the company's long$-$term viability and profitability?

A company cuts back on the downtime and maintenance and repair activities necessary to preserve the performance of the property and

equipment.

A company doesn't replace worn$-$out plant and equipment and operates the remaining assets over additional work shifts.

The trend of the total asset turnover ratio indicates that Target is moderately successful in generating sales dollars using its entire holding of assets.

In general, it earns $$1\mathrm{.}42$ to $$1\mathrm{.}51$ of