Final answer:
True. Return on assets (ROA) is a financial metric used to measure a company's profitability and efficiency in utilizing its assets. The elements of ROA are profit margin and asset turnover.
Step-by-step explanation:
True. Return on assets (ROA) is a financial metric used to measure a company's profitability and efficiency in utilizing its assets. The two major elements of ROA are profit margin and asset turnover.
Profit margin represents a company's ability to generate profit from its sales. It is calculated by dividing net income by total revenue and is expressed as a percentage. Higher profit margin indicates better profitability.
Asset turnover, on the other hand, measures a company's efficiency in generating revenue from its assets. It is calculated by dividing total revenue by average total assets and is usually expressed as a ratio. Higher asset turnover indicates better asset utilization.
By analyzing profit margin and asset turnover, investors and analysts can gain insights into a firm's financial performance and compare it with industry benchmarks or previous periods.