Question

A company's return on assets (ROA) can be disaggregated to reveal which of the following: (Select all that apply)

a. Financial leverage
b. Asset turnover
c. Sales growth
d. Profit margin
e. Asset growth

Answer 1

Answer:

b. Asset Turnover &

d. Profit margin.

Explanation:

Return on asset (ROA) simply shows a percentage of how profitable companies assets are in generating the revenue. It is calculated as:

$= \frac{Net income}{Total assets}$

However, if we further break it down, we can write it as follows:

$= \frac{Net income}{Sales} * \frac{Sales}{Total Assets}$

Both formulas Represent the same things.

But, the ratio of Net income to Sales is known as the Profit margin- A degree to which company makes money. Here, we can see how the ROA can be broken down in terms of profit margin.

Also, the ratio of Sales to Total asset is know as the Asset Turnover- a measure of company's use assets in generating the sales.

Hence, we can say that the ROA can  be dis aggregated to reveal the Asset Turnover and the Profit margin.