Return on assets is most closely related to
A)interest coverage and the debt to equity ratios.
B)profit margin and the debt to equity ratio.
C)profit margin and asset turnover.
D)inventory turnover and profit margin.

Question

Quizplus · Accepted Answer

Return on assets (ROA) is calculated by dividing net income by total assets. Therefore, it is most closely related to the profit margin (net income divided by revenue) and the asset turnover (revenue divided by total assets) ratios. ROA measures how efficiently a company is using its assets to generate profits, and both profit margin and asset turnover are key components in this calculation. Interest coverage and the debt to equity ratios (A) are measures of a company's leverage and ability to handle debt payments. Inventory turnover and profit margin (D) are not directly related to ROA.

Return on Assets Is Most Closely Related to