Question

‘Net Asset Turnover ratio’ of a company is 2 times. State with reason whether the following transaction will increase, decrease or not affect the ratio:

Credit purchase of goods ₹ 50,000

Answer 1

No effect

Reason:

Credit purchases increase both current assets (Inventory) and current liabilities (Trade Payables) by the identical amount. Since Net Assets are calculated as Total Assets − Current Liabilities, the net effect on the denominator is zero. The numerator is also unaffected.