The T-shirt Hut successfully managed to reduce its general and administrative costs this year.This cost improvement will increase which of the following ratios?
I.Profit margin
II.Return on assets
III.Total asset turnover
IV.Return on equity
A)I and II only
B)I and III only
C)II, III, and IV only
D)I, II, and IV only
E)I, II, III, and IV

Question

Quizplus · Accepted Answer

The reduction in general and administrative costs will lead to an increase in the profit margin (I) as it directly affects the cost of goods sold. Return on assets (II) will also increase as the cost of assets will decrease due to lower administrative expenses. Total asset turnover (III) will increase as well since the ratio measures how efficiently a company uses its assets to generate revenue, and lower administrative costs will lead to higher revenue generated per asset. Finally, return on equity (IV) will increase since it is a measure of how effectively a company uses shareholder equity to generate profits, and lower general and administrative costs will lead to higher profits for the shareholders.

The T-Shirt Hut Successfully Managed to Reduce Its General and Administrative