U2, AOS 3 - Lesson 4 - Evaluating Bus' Performance

Question 1

ATO formula is…

Answer 1

Net Sales / Average Total Assets

Question 2

ATO measures…

Answer 2

…how productively a business has used its assets to earn sales revenue.

Question 3

ATO should be increasing or decreasing?

Answer 3

An increasing Asset Turnover indicates an improvement in the efficient use of the businesses assets to generate sales revenue.

Question 4

Causes of improved ATO:

Answer 4

Increase in sales quicker than increase in value of assets held by the business.

Decrease in value of assets held by the business with sales remaining steady.

Question 5

Causes of worsening ATO:

Answer 5

Increase in value of assets quicker than increase in sales

Decrease in sales quicker than decrease in value of assets

Question 6

Return on assets measures…

Answer 6

…how effectively a business has used its’ assets to earn profit.

Question 7

ROA formula

Answer 7

NP/ATA x100

Question 8

ROA should be increasing or decreasing?

Answer 8

An Increasing Return on Assets indicates an improvement in the efficient use of the businesses assets to earn profit.

Question 10

Causes of increasing ROA:

Answer 10

Increase in net profit quicker than increase in value of assets held by the business.

Decrease in value of assets held by the business with profit remaining steady.

Question 11

Causes of decreasing ROA:

Answer 11

Increase in value of assets while profit remaining steady.

Decrease in profit while value of assets remained steady.