Question
A company reported net profit ratio of 5% and RoA of 9%
on total assets of Rs.90 Lakh. What will be the Total Asset Turnover Ratio of the company?Solution
Total Asset turnover Ratio = Sales/Average total assets Here, total asset is known of Rs.90 lakh. Sales need to be calculated. RoA = Net profit/total assets or Net Profit = RoA * total assets = 9% of 90 lakh = Rs.810,000 Net Profit Ratio = Net Profit/Sales or Sales = Net profit/net profit ratio = 810,000/5% = Rs.162 lakh Therefore, total turnover ratio = Sales/Total assets = 162 lakh/90 lakh = 1.8 times
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