Consider two companies (A and B) with equal profit margins of 18%. Company A has an asset turnover of 1.2 and Company B has an asset turnover of 1.5. If all else is equal, Company B with its’ higher asset turnover, is less profitable because it requires more revenue to turn its assets over. Select one:

a. True
b. False

The correct answer is False.

Explanation:

Asset turnover is a financial indicator that evaluates the efficiency of management in managing their sales vs. the assets they own. The example shows that companies A and B, despite having equal profit margins, have a different rotation. As explained at the beginning, a higher turnover indicator shows that it is more profitable because it measures the number of times that assets generate sales revenue, which would be a benefit for the organization.

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