ACCA Applied Knowledge · Financial Accounting · Analysis of financial statements
Dax Co's non-current asset turnover fell from 2.5 times to 2.0 times over the year, while revenue was unchanged. Which is the most likely explanation?
The most likely cause is that Dax's non-current assets increased, through new investment or revaluation, with no matching rise in revenue. Since revenue was unchanged, a lower turnover ratio must come from a larger asset base.
- ADax revalued or invested in additional non-current assets without a matching rise in revenueCorrect
- BDax sold some non-current assets and leased none
- CDax reduced the credit period given to customers
- DDax increased its inventory levels
Explanation
With revenue constant, a lower ratio means non-current assets rose, for example through new purchases or revaluation. Selling assets would increase the ratio. Receivables and inventory changes do not affect non-current assets.
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