A firm with a substandard net profit margin can improve its return on total assets by
A) increasing its debt ratio.
B) increasing its total asset turnover.
C) decreasing its total asset turnover.
D) decreasing its fixed asset turnover.

Question

Quizplus · Accepted Answer

A firm's return on total assets (ROA) is calculated as net profit margin multiplied by total asset turnover. Therefore, to improve ROA, a firm can either increase its net profit margin or increase its total asset turnover. Since the question states that the firm has a substandard net profit margin, the only viable option is to increase its total asset turnover, which will in turn increase its ROA. Therefore, the best choice is B: increasing its total asset turnover.

A Firm with a Substandard Net Profit Margin Can Improve