Q:
A:
XYZ
Corp. has an asset turnover ratio of 0.75. Because
the economy is currently sluggish, the firm cannot
raise this ratio any higher than what it is. However,
if the firm wanted to boost its return on assets to
16%, which of the following scenarios would help them
achieve that?
a) An equity turnover of 1.2.
b) A profit margin of 21.33%.
c) A return on equity of 14.3%.
d) A debttoasset ratio of 0.62.
a) An equity turnover of 1.2.
b) A profit margin of 21.33%.
c) A return on equity of 14.3%.
d) A debttoasset ratio of 0.62.
The correct answer is: b)
Return on Assets = NI/Sales = Sales/Assets x NI/Sales
.16 = 0.75 x (NI/Sales)
Therefore, NI/Sales = .16/.75 = 21.33%
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