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Williams Manufacturing uses scrap metal to produce various tools, such as drill bits, hammer heads, saw blades, and nails. The CEO has asked you to analyze the saw blades division to determine the asset turnover for the last quarter.

You find that the saw blades division had an ROI of 20%, sales of $10 million, and operating profits of $1 million.

What was the asset turnover rate for the last quarter?

Answer :

Final answer:

The asset turnover rate for the saw blades division last quarter was 1.

Explanation:

The asset turnover rate is a financial metric used to measure a company's efficiency in generating sales revenue from its assets. It is calculated by dividing sales by average total assets. In this case, we are given the sales of the saw blades division as $10 million and the ROI as 20%.

First, we can calculate the operating profits by multiplying the sales by the ROI: $10 million x 0.20 = $2 million.

To find the average total assets, we can rearrange the ROI formula: ROI = Operating Profits / Average Total Assets. Rearranging the formula gives us Average Total Assets = Operating Profits / ROI. Plugging in the values, we get Average Total Assets = $2 million / 0.20 = $10 million.

Finally, we can calculate the asset turnover rate by dividing the sales by the average total assets: $10 million / $10 million = 1. The asset turnover rate for the saw blades division last quarter was 1.

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