202589-10-63P

AID: 7725 | 1/06/2015

1. Given values:
Particulars
Sales

Amount
$4,800,000

Total assets, 2014

$2,225,000

Total assets, 2015

$2,850,000

Calculate average inventory:

The average inventory is calculated by adding total assets of 2014, 2015 and dividing
with 2.
Total Assets 2014 + Total Assets 2015
2
$2,225,000 +$ 2,850,000
=
2
=$2,537,500

Average Inventory =

Calculate fixed asset turnover ratio for 2014:

The fixed asset turnover ratio is calculated by dividing sales with the average
inventory.
Sales
Average Inventory
4,800,000
=
2,537,500
=1.89

Fixed Assets Turnover Ratio =

2. Given values:
Particulars
Sales
Total assets, 2012
Total assets, 2013

Amount
$4,800,000
$2,900,000
$3,650,000

Since for inventory valuation LIFO was used, thus the LIFO value of inventory
valuation is subtracted from fair value.

Calculate average inventory:

The average inventory is calculated by adding total assets of 2014, 2015 and dividing
with 2.
Total Assets 2014 + Total Assets 2015
Average Inventory =
2
$2,900,000 +$ 3,650,000
=
2
=$3,275,000

Calculate fixed asset turnover ratio for 2015:

The fixed asset turnover ratio is calculated by dividing sales with the average
inventory.
Sales
Fixed Assets Turnover Ratio =
Average Inventory
4,800,000
=
3,275,000
=1.47
3. Fixed assets turnover ratio indicates the efficiency of the company with which they
are converting the usage of fixed assets into net sales. Hence, P is less efficient at
using its fixed assets than S State because it has less value of fixed assets turnover
ratio than S state which implies it is generating fewer sales from its fixed assets as
compared to S State.