Question

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?

1) 0.333 percent
2) 8.0 percent
3) 12.0 percent
4) 25.2 percent
5) 33.0 percent

Answer 1

The Return on Assets (ROA), given a net profit margin of 2.0 percent and a rate of asset turnover of 6.0x, is 12.0 percent. The financial leverage data provided is not necessary for the ROA calculation.

Step-by-step explanation:

If the net profit margin is 2.0 percent, the rate of asset turnover is 6.0x, and the financial leverage is 2.1, we can calculate the Return on Assets (ROA) using the following formula:

ROA = Net Profit Margin × Asset Turnover

The financial leverage is not required to calculate the ROA, so we will ignore it for this calculation. Now, plugging in the given figures:

ROA = 0.02 (2.0 percent expressed as a decimal) × 6.0

ROA = 0.12 or 12.0 percent

Therefore, the Return on Assets (ROA) is 12.0 percent.