ITPEC IP April 2024 Question 72
ITPEC IP April 2024 — Question 72 of 100
Total capital turnover indicates how efficiently the company uses its capital to generate sales. It is generally calculated as net sales ÷ total capital or total assets. A higher turnover means that each unit of capital supports a larger amount of revenue, though interpretation should consider the industry and asset requirements.
Answer (c)
Why not others:
- (a) operating profit to net sales is an operating-profit margin and measures profitability per unit of sales
- (b) equity to total assets is a capital-structure or financial-stability ratio
- (d) the break-even point ratio indicates the relationship between actual sales and the sales level needed to avoid a loss
Key rule: Turnover ratios measure efficiency of asset or capital utilization; margin ratios measure profit earned from sales.
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