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 fixed asset turnover.
D) decreasing its total asset turnover.

Question

Quizplus · Accepted Answer

Increasing the total asset turnover will increase the firm's revenue, which will in turn increase the net profit margin, thereby improving the return on total assets. Increasing the debt ratio may also increase the return on total assets, but it is not a long-term sustainable solution and can increase the firm's financial risk. Decreasing the fixed asset turnover or total asset turnover may lower the net profit margin further, worsening the return on total assets. Therefore, option B is the best choice.

A Firm with a Substandard Net Profit Margin Can Improve