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A high Fixed Assets Turnover Ratio could indicate:
AOld plant and machinery being used
BInefficient utilisation of fixed assets
CHeavy new capital expenditure
DLow sales volume
Answer & Solution
Correct answer: A. Old plant and machinery being used
1. Fixed Assets Turnover = Sales / Fixed Assets.
2. A firm with old (low book value) plant may show a higher ratio than one with new plant.
3. Caution: a high ratio is not always a sign of better efficiency.
_Source: ICAI BoS CA Inter Paper 6A, Ch 3 "Financial Analysis and Planning — Ratio Analysis", §3.3(b)_
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