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Chapter 2: 12BP (page 79)

All State Trucking Co. has the following ratios compared to its industry for last year:

Allstate trucking

Industry

Return on sales

3%

8%

Return on assets

15%

10%

Explain why the return-on-assets ratio is so much more favorable than thereturn-on-sales ratio compared to the industry. No numbers are necessary;a one-

sentence answer is all that is required.

Short Answer

Expert verified

All-State Trucking Co. has a higher asset turnover ratio than the industry.

Step by step solution

01

Calculating the Asset Turnover Ratio with Return on Assets and Return on Sales

The asset turnover ratio is the ratio between a company's sales and total assets (Net sales/Total Assets). It indicates how well the company is converting its resources into revenue.

By dividing Return on Sales by Return on Assets, we have:

02

Allstate Trucking Co.'s Asset Turnover Ratio

03

Industry's Asset Turnover Ratio

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