Final answer:
Multiplying a firm's profit margin by its asset turnover gives you the Return on Assets (ROA), not average total assets, net sales, or net income. ROA is a key performance metric in evaluating financial efficiency. The correct option is C.
Step-by-step explanation:
If you multiply a firm's profit margin on sales by its asset turnover, you will have calculated the firm's return on assets (ROA). The profit margin is determined by dividing the profit by the quantity of output produced, which provides us with the average profit per unit of output sold. Asset turnover is a measure of how efficiently a firm uses its assets to generate sales and is calculated by dividing net sales by average total assets.
When you combine these two metrics—profit margin and asset turnover—you get the ROA, which provides an indication of how effectively a company is using its assets to generate earnings. High ROA values typically signify better financial performance and efficiency in managing assets to produce profits.