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      Question

      A company reporting a Total Asset Turnover Ratio

      significantly higher than the industry average most likely indicates that:
      A The company is generating higher sales volume for every rupee invested in assets compared to its peers. Correct Answer Incorrect Answer
      B The company has a superior P/E ratio, reflecting higher market confidence in the industry Correct Answer Incorrect Answer
      C The company is definitely more profitable in terms of Net Profit Margin than its other peers Correct Answer Incorrect Answer
      D The company is following a capital-intensive strategy with high spending on fixed assets. Correct Answer Incorrect Answer
      E The company has a lower debt-to-equity ratio than the industry average making it more asset light Correct Answer Incorrect Answer

      Solution


      Asset Turnover Ratio measures the efficiency of a company's use of its assets in generating revenue.  A higher ratio implies better utilization of resources. It does not directly guarantee higher profits (which depends on margins) or a better P/E ratio. 

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