The return on assets ratio can be calculated as
A)Profit margin × debt to total assets ratio.
B)Profit margin × asset turnover ratio.
C)Gross profit margin × return on equity.
D)Gross profit margin × cash flow to sales revenue.

Question

Quizplus · Accepted Answer

The return on assets ratio is calculated by dividing the net income by the total assets. The profit margin indicates the amount of profit made on each dollar of sales, while the asset turnover ratio measures the efficiency of the company in generating sales from its assets. Therefore, multiplying the profit margin and asset turnover ratio gives us the return on assets ratio. Choice A is incorrect because it includes the debt to total assets ratio, which is not relevant for calculating the return on assets ratio. Choice C is incorrect because it includes the return on equity, which is a different ratio. Choice D is incorrect because it includes cash flow instead of net income, which is used for calculating the return on assets ratio.

The Return on Assets Ratio Can Be Calculated as