Question

Which one of the following will decrease if a firm can decrease its operating costs, all else constant?

A. return on equity

B. return on assets

C. profit margin

D. total asset turnover

E. price-earnings ratio

Answer 1

The correct answer is C. profit margin. If a firm can decrease its operating costs, its profit margin will increase.

Step-by-step explanation:

The correct answer is C. profit margin.

Profit margin is a financial metric used to assess a company's profitability. It is calculated by dividing net income by revenue. If a firm is able to decrease its operating costs, its profit margin will increase because the net income will remain the same while the revenue decreases.

For example, if a firm reduces its expenses by negotiating lower lease payments or implementing cost-saving measures, the profit margin will improve because the company is generating the same amount of profit but with lower costs.