UUP IncIs Very Conservatively Managed and Nothing Ever Changes - Their

question 84

Multiple Choice

UUP Inc.is very conservatively managed and nothing ever changes - their sales are constant over time, the collection periods stay the same, and the firm has not invested in any new assets.An investor is puzzled - having found that the fixed asset turnover rate is changing over time.How can the apparent efficiency with which the firm uses its assets be changing if all other items are not changing?

• A)This observation is impossible; they must have miscalculated something.
• B)This observation is possible; the fixed asset turnover must increase in this case due to depreciation.
• C)This observation is possible; the fixed asset turnover must decrease in this case due to depreciation.
• D)This observation is possible; they should look at net income and not sales - it is a better measure of the firm's efficiency and productivity.

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Definitions:

Days' Sales in Receivable

A financial metric that calculates the average number of days it takes for a company to collect payments after a sale has been made.

Financial Records

Documents that capture all financial transactions of a business or individual, including income, expenses, assets, and liabilities.

Accounts Receivable Turnover

A financial ratio that measures how effectively a company collects cash from credit sales by comparing net credit sales with the average balance of accounts receivable.

Fiscal Years

A one-year period that companies and governments use for financial reporting and budgeting, differing from the calendar year.