Generally, firms with high profit margins have high asset turnover rates, and firms with low profit margins have low turnover rates; this result is exactly as predicted by the extended Du Pont equation.

Question

Quizplus · Accepted Answer

The statement is incorrect. Firms with high profit margins can have both high and low asset turnover rates, and the same goes for firms with low profit margins. The relationship between profit margin and asset turnover rate is not so straightforward and can vary depending on the industry and other factors. The extended Du Pont equation, while useful for analyzing a firm's return on equity, does not necessarily predict this relationship.

Generally, Firms with High Profit Margins Have High Asset Turnover