PE 6-7A Ratio of net sales to assets

The following financial statement data for years ending December 31 for Foodworks
Company are shown below.
                                                            2012              2011
              Net sales                             $880,000        $787,500
              Total assets:
                   Beginning of year            500,000          375,000
                   End of year                     600,000          500,000
a. Determine the ratio of net sales to assets for 2012 and 2011.
b. Does the change in the ratio of net sales to assets from 2011 to 2012 indicate a favorable
or an unfavorable trend?

Answer:
a.                                                                        2012                2011
               Ratio of net sales to assets                     1.6*                1.8**
               *$880,000/[($500,000 + $600,000)/2]
               **$787,500/[($375,000 + $500,000)/2]

b. The change from 1.8 to 1.6 indicates an unfavorable trend in using assets to
generate sales.