To study changes in ROA, the analyst can disaggregate ROA into the product of two other ratios:
A)the gross profit for ROA ratio and the total assets turnover ratio.
B)the profit margin for ROA ratio and the inventory turnover ratio
C)the gross margin for ROA ratio and the inventory turnover ratio.
D)the profit margin for ROA ratio and the total assets turnover ratio
E)the gross margin for ROA ratio and the total assets turnover ratio.

Question

Quizplus · Accepted Answer

ROA can be disaggregated into the product of two other ratios: the profit margin and the total assets turnover ratio. The profit margin measures the amount of profit earned per dollar of sales, and the total assets turnover ratio measures the efficiency of the company in using its assets to generate sales. By examining the trend of the profit margin and the total assets turnover ratio, an analyst can determine the factors affecting changes in ROA.

To Study Changes in ROA, the Analyst Can Disaggregate ROA