Last year a Vancouver ﬁrm had a proﬁt margin of 7%. This year the proﬁt margin is 6%. Sales remained constant. Which one of the following statements is correct based on this information?
A) The return on assets declined.
B) The return on equity increased.
C) The net income increased.
D) The price earnings ratio decreased.
E) The interval measure decreased.

Question

Quizplus · Accepted Answer

The proﬁt margin is a measure of net income compared to sales. If sales remained constant and the proﬁt margin decreased, then net income must have decreased as well. Since return on assets is a measure of net income compared to total assets, a decrease in net income would result in a decline in return on assets. The other answer choices are not relevant to the given information.

Last Year a Vancouver ﬁRm Had a Proﬁt Margin of 7