The asset turnover ratio is calculated by dividing net sales by average total assets.

• A. True
• B. False
• C. It uses average operating assets as denominator
• D. Net income divided by total assets

Answer: (A)

Asset turnover measures how efficiently a company uses its assets to generate sales. The standard calculation is net sales divided by average total assets, with net sales representing revenue after returns and allowances and the denominator using the period’s average total assets (commonly the mean of beginning and ending total assets). Using average total assets smooths changes in asset levels over the period and aligns the asset base with the same time frame as the sales figure. Using operating assets or net income divided by total assets would describe different concepts (operating assets is not the standard denominator here, and net income over total assets is return on assets, not turnover). So the statement is true.