What effect will transaction (a) have on the net profit margin and debt-to-assets ratios?
A) Net profit margin ratio will increase and debt-to-assets ratio will decrease.
B) Net profit margin ratio will not be affected and debt-to-assets ratio will decrease.
C) Both ratios will decrease.
D) There will be no change in either ratio.

Question

Quizplus · Accepted Answer

If transaction (a) increases the sale of goods, it will lead to an increase in revenue and therefore increase the net profit margin ratio. If the goods are sold for cash, it will increase the asset and decrease the liability (debt-to-assets ratio), leading to a decrease in the debt-to-assets ratio.

What Effect Will Transaction (A) Have on the Net Profit