Ratios analysis
Created: 1 year ago
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Updated: 1 day ago
Determine a firm's total asset turnover (TAT) if its net profit margin (NPM) is 5 percent, total assets are $8 million, and ROI is 8 percent.
Asked by
KHAIRUL BASAR
KHAIRUL BASAR
To find the total asset turnover (TAT), we can use the formula:
TAT = Sales / Total Assets
First, we need to find the sales using the given ROI and Net Profit Margin.
ROI = (Net Income / Total Assets)
Given that ROI is 8% and total assets are $8 million:
Net Income = ROI * Total Assets
Net Income = 0.08 * 8,000,000 = $640,000
Now, using the net profit margin (NPM):
NPM = (Net Income / Sales)
0.05 = 640,000 / Sales
Solving for Sales:
Sales = 640,000 / 0.05 = $12,800,000
Now, we can calculate TAT:
TAT = Sales / Total Assets
TAT = 12,800,000 / 8,000,000 = 1.6
The firm's total asset turnover (TAT) is 1.6.
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