A retailer has a return on net worth of 24 percent.If its asset turnover is 3 and its profit margin is 4.0 percent,what is its financial leverage?
A) 2 times
B) 2 percent
C) 4 times
D) 4 percent

Question

Quizplus · Accepted Answer

2 timesThe financial leverage can be calculated using the formula: Return on Net Worth = Profit Margin * Asset Turnover * Financial Leverage. Plugging in the given values: 24% = 4% * 3 * Financial Leverage. Solving for Financial Leverage gives us 2 times, indicating the retailer's assets are financed by 2 times the amount of its equity.

A Retailer Has a Return on Net Worth of 24