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In calculating Asset turnover ratio you told to take Revenue/Total long term capital.My doubt is why not to take Total assets instead of total long term capital so that we can analyse total recenue generated from total assets used
Effectively that is what we are doing 🙂
You should remember from Paper FA (was F3) that the long-term capital (i.e. shareholders funds + long-term borrowings) is always equal to the non-current assets + the working capital (i.e. current assets less current liabilities). Depending on the information given in the question you can either divide the revenue by the long-term. capital, or instead divide it by the non-current assets + the working capital – the answer would always be the same 🙂
(There is logic in calculating the non-current asset turnover, which is the revenue divided just by the non-current assets, but there is no need to do this in the exam unless the question specifically asks for it.)
okay I am exempted from F3 so I wasnt aware of that formula you have mentioned .Appreciated for your quick reply.And thank you so much for the wonderful lectures.Grateful.
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