Which of the following statements is true?
A)A decrease in net income decreases both the net profit margin ratio and the total asset turnover ratio.
B)An increase in average total assets results in a decrease in both the total asset turnover ratio and the net profit margin ratio.
C)A decrease in average total assets results in an increase in the total asset turnover ratio and a decrease in the net profit margin ratio.
D)An increase in net income increases both the net profit margin ratio and the return on assets ratio.

Question

Quizplus · Accepted Answer

An increase in net income directly increases the net profit margin ratio (since net profit margin is net income divided by sales) and the return on assets ratio (since ROA is net income divided by average total assets). The other options incorrectly describe the relationships between financial metrics.

Which of the Following Statements Is True