Question

Outdoor Gear reduced its general and administrative costs this year. The cost improvement will increase which of the following ratios?I. Profit marginII. Return on assetsIII. Total asset turnoverIV. Return on equityA) I and II onlyB) I and III onlyC) II, III, and IV onlyD) I, II, and IV onlyE) I, II, III, and IV

Answer 1

Options 1,2 and 4 will be impacted.

Step-by-step explanation:

Consider the following statements

• Profit margin gives profit/sales, profit will increase with reduction in cost hence this ratio will get impacted.

• Return on assets gives profit /average total assets, since profits will increase with reduction in cost this ratio will be impacted.

• Return on equity gives profit/Equity, hence this ratio will be impacted.