Please show me how to calculate this problem:
During 2007, Sitter Corporation reported net sales of $2,000,000, net income of $1,200,000, and depreciation expense of $100,000. Sitter also beginning total asset of $1,000,000, ending total asset of $1,500,000, plant asset of $800,000, and accumulated depreciation of $500,000. Sitter’s asset turnover ratio is:
To calculate Sitter Corporation's asset turnover ratio, you need to divide the net sales by the average total assets. Here are the steps to find the solution:
Step 1: Calculate the average total assets.
To calculate the average total assets, add the beginning total assets to the ending total assets and divide the sum by 2. In this case, it would be:
Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2
Average Total Assets = ($1,000,000 + $1,500,000) / 2
Average Total Assets = $2,500,000 / 2
Average Total Assets = $1,250,000
Step 2: Calculate the asset turnover ratio.
To calculate the asset turnover ratio, divide the net sales by the average total assets. Using the given information:
Asset Turnover Ratio = Net Sales / Average Total Assets
Asset Turnover Ratio = $2,000,000 / $1,250,000
Asset Turnover Ratio = 1.6
Therefore, Sitter Corporation's asset turnover ratio is 1.6.