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
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6y ago#1Effectively 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.
6y ago#3You are welcome, and thank you for your comment :-)
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