The question is: Defining total asset turnover as revenue divided by average total assets, all else equal, impairment write-downs of long-lived assets owned by a company will most likely result in an increase for that company in: Answer is "both the debt-to-equity ratio and the total asset turnover. My perspective: Yes, the asset turnover ratio must rise because the asset base decreases from the reduction in the PPE. Now, there must be a reduction elsewhere to balance out the A=L+E equation. Logically the Equity section reduces. But the answer key fails to say what part of the equity reduces. Is it the retained earnings that reduces? Thanks for the feedback everyone.
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levitsa101 Wrote: ------------------------------------------------------- > The question is: > > Defining total asset turnover as revenue divided > by average total assets, all else equal, > impairment write-downs of long-lived assets owned > by a company will most likely result in an > increase for that company in: > > Answer is "both the debt-to-equity ratio and the > total asset turnover. > > My perspective: Yes, the asset turnover ratio must > rise because the asset base decreases from the > reduction in the PPE. Now, there must be a > reduction elsewhere to balance out the A=L+E > equation. Logically the Equity section reduces. > But the answer key fails to say what part of the > equity reduces. Is it the retained earnings that > reduces? > > Thanks for the feedback everyone. yes, retained earnings brother, net income is included in R.E
Yeah, retained earnings as part of equity reduced because of decrease in net income
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