Question

Assume BDS acquired its main supplier, ABC. As a result of the acquisition, BDS finds that its operating profit margin increased but its ROA remained constant. A decrease in which one of these ratios is most apt to be the reason why the ROA did not increase with the increase in the operating profit margin?

Answer 1

Asset turnover

Step-by-step explanation:

The asset turnover shows the relation between the average assets and the turnover. It is to be computed by dividing the turnover from the average of an assets . It is mainly defines the efficiency of the company whether the company is able to generate the profits by using the assets or not

Also the overhead expenses would be reduced that ultimately increased the operating profit margin

Also, as we know that

Operating Margin = Operating Profit ÷ Sales

And,

Return on Asset = Net Income ÷ Average Total Assets.

Therefore according to the given situation, the asset turnover would be opted and the same is to be considered