Which of the following could cause return on assets to decline when net profit margin is increasing?
A)Sale of investments at year-end
B)Increased turnover of operating assets
C)Decline in book value
D)A stock split
E)Purchase of a new building at year-end

Question

Quizplus · Accepted Answer

When a company purchases a new building at year-end, it increases its total assets without immediately affecting its net income, which can lead to a decline in return on assets (ROA) even if the net profit margin is increasing. ROA is calculated as net income divided by total assets, so an increase in assets without a corresponding increase in net income lowers the ratio.

Which of the Following Could Cause Return on Assets to Decline