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Reduction in TATO

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Wie Corp's sales last year were $365,000, and its year-end total assets were $355,000. The average firm in the industry has a total assets turnover ratio (TATO) of 2.4. The firm's new CFO believes the firm has excess assets that can be sold so as to bring the TATO down to the industry average without affecting sales. By how much must the assets be reduced to bring the TATO to the industry average, holding sales constant?

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Solution Summary

Solution calculates the extent by which total assets can be reduced to meet average industry average TATO.

Solution Preview

TATO=Net sales/total assets

Net sales=$365000

Target TATO=2.4

Assets needed ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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