Which of the following is a measure of asset efficiency mentioned in the material?

• A. Current ratio
• B. Days in A/R
• C. Debt-to-equity ratio
• D. Asset turnover

Answer: (D)

Asset efficiency focuses on how effectively a company uses its assets to generate sales. The measure that directly captures this is asset turnover, which compares net sales to average total assets. A higher asset turnover means more sales are produced per dollar of assets, indicating more efficient use of assets. For example, if net sales are $500,000 and average assets are $250,000, asset turnover is 2.0, meaning each dollar of assets generated $2 in sales.

Current ratio assesses liquidity (ability to cover short-term obligations), not how efficiently assets are used to generate revenue. Debt-to-equity ratio relates to financing risk and leverage. Days in A/R reflects how quickly receivables are collected, a process efficiency in working capital, but not the overall efficiency of asset utilization to produce sales.