Zylex Corporation has multiple factories across the United States. The upper management at Zylex evaluates each factory based on the capital turnover ratio from the DuPont system. Below is information for the factory in Pennsylvania for the past year.
Year 2
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000
Operating expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 640,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,200,000
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 220,000
Compute the capital turnover ratio using (1) total assets and (2) assets net of depreciation.
Which investment base will the Pennsylvania factory manager prefer and why?
