If managers want to increase ROI,an increase in sales revenue will increase
A)Margin.
B)Asset turnover.
C)Both margin and asset turnover.
D)Neither margin nor asset turnover.

Question

Quizplus · Accepted Answer

ROI (Return on Investment) is calculated by dividing the profit (or net income) by the total investment. Therefore, to increase ROI, either profits should increase or investment should decrease. Here, the focus is on increasing ROI through an increase in sales revenue.

An increase in sales can lead to increased profits if managers also maintain or increase the profit margin. Profit margin is the ratio of profit to sales revenue. So, if sales revenue increases but profit margin decreases, the overall profit may not increase, and hence, the ROI may not improve. Therefore, an increase in sales revenue should be accompanied by a similar increase in profit margin to improve ROI.

At the same time, an increase in sales revenue can also be achieved by increasing asset turnover. Asset turnover measures the efficiency of using assets to generate sales revenue. If sales revenue increases while assets remain the same, then asset turnover increases. This means that the company is generating more revenue for every dollar invested in assets, which could lead to higher profits and higher ROI.

Therefore, both margin and asset turnover are important factors to consider when trying to increase ROI with an increase in sales revenue.

If Managers Want to Increase ROI,an Increase in Sales Revenue