If net profit margin is 2.0 percent,the rate of asset turnover is 6.0x,and the financial leverage is 2.1,what is the return on assets?

Question

Quizplus · Accepted Answer

Return on assets (ROA) formula is:

ROA = Net Profit Margin x Asset Turnover Ratio

Where,

Net Profit Margin = 2.0%
Asset Turnover Ratio = 6.0x

So,

ROA = 2.0% x 6.0 = 12.0%

Also,

ROA = Net Income / Total Assets

ROA = (Net Income/Sales) x (Sales/Total Assets)

Here, (Net Income/Sales) = Net Profit Margin = 2.0%

And, (Sales/Total Assets) = Asset Turnover Ratio = 6.0x

So,

ROA = 2.0% x 6.0 = 12.0%

Therefore, the answer is (C) 12.0 percent.

If Net Profit Margin Is 2