Question

If a retailer has a return on assets of 15 percent and a net profit margin of 3 percent, then its rate of asset turnover is:

1) .20 times
2) 5.0 times
3) 15.0 times
4) 30.0 times
5) 60.0 times

Answer 1

The rate of asset turnover for the retailer is 5.0 times(2).

Step-by-step explanation:

The rate of asset turnover can be calculated by dividing the net sales by the average total assets. The net profit margin is calculated by dividing the net profit by the net sales. In this case, the retailer has a net profit margin of 3% and a return on assets of 15%. Assuming no interest income, the net sales would be equal to the total sales. Using these values, we can calculate the rate of asset turnover using the formula:

Rate of Asset Turnover = Net Sales / Average Total Assets

Since the net profit margin is a percentage of the net sales, we can rearrange the formula as:

Rate of Asset Turnover = Net Profit / Net Profit Margin = Return on Assets / Net Profit Margin

Substituting the given values, the rate of asset turnover would be:

Rate of Asset Turnover = 15% / 3% = 5.0 times(2).