Asked by Ramneek Thatai on Jul 14, 2024
Verified
Which of the following statements is true?
A) A decrease in net income decreases both the net profit margin ratio and the total asset turnover ratio.
B) An increase in average total assets results in a decrease in both the total asset turnover ratio and the net profit margin ratio.
C) A decrease in average total assets results in an increase in the total asset turnover ratio and a decrease in the net profit margin ratio.
D) An increase in net income increases both the net profit margin ratio and the return on assets ratio.
Net Profit Margin Ratio
A financial metric that calculates the percentage of net income generated from net sales.
Total Asset Turnover
Total asset turnover is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue, calculated by dividing sales by average total assets.
- Ascertain major financial ratios and the techniques for computing them within financial analyses.
Verified Answer
AP
Amanda PlevickJul 16, 2024
Final Answer :
D
Explanation :
An increase in net income directly increases the net profit margin ratio (since net profit margin is net income divided by sales) and the return on assets ratio (since ROA is net income divided by average total assets). The other options incorrectly describe the relationships between financial metrics.
Learning Objectives
- Ascertain major financial ratios and the techniques for computing them within financial analyses.