PE 6-7B Ratio of net sales to assets

The following financial Statement data for years ending December 31 for Beading Company
are shown below.
                                                                        2012               2011
                      Net sales                                $675,000          $475,000
                      Total assets:
                              Beginning of year            200,000            180,000
                              End of year                     250,000            200,000
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                         3.0*                   2.5**
           *$675,000/[($200,000 + $250,000)/2]
           **$475,000/[($180,000 + $200,000)/2]

b. The change from 2.5 to 3.0 indicates a favorable trend in using assets to generate sales.