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:

Cash sales ₹ 3,00,000

Answer 1

Increase

Reason:

Cash sales increase sales as well as current assets (cash). Since the existing ratio is 2 : 1, an increase in the numerator (sales) is proportionately greater, so the ratio increases.