Which of the following statements is true?
A) If the asset turnover ratio remains constant and the profit margin increases,return on assets must have increased.
B) If return on assets increases,return on equity must increase.
C) If the current ratio increases,the quick ratio will also increase.
D) None of the answers provided.

Question

Quizplus · Accepted Answer

If the asset turnover ratio remains constant and the profit margin increases, return on assets will increase because the numerator (net income) would have increased while the denominator (average total assets) remains the same. Option B is false because return on equity can decrease if liabilities increase faster than assets. Option C is false because the current ratio includes inventory, while the quick ratio excludes it; therefore, increasing inventory will increase the current ratio but not the quick ratio.

Which of the Following Statements Is True