What effect will transaction (a)have on the net profit margin and debt-to-assets ratios?
A)Net profit margin will increase and debt-to-assets will decrease.
B)Net profit margin will decrease and debt-to-assets will increase.
C)Both ratios will decrease.
D)Both ratios will increase.

Question

Quizplus · Accepted Answer

Transaction (a) involves increasing sales and decreasing debts. This will lead to an increase in net profit margin (as sales increase, there will be a higher profit margin) and a decrease in debt-to-assets ratio (as debt decreases, the total assets will have a higher proportion of equity).

What Effect Will Transaction (A)have on the Net Profit Margin