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    Question

    A company's financial statements show a profit margin of

    15% and a return on equity (ROE) of 20%. What is the company's asset turnover ratio assuming financial leverage of 2?
    A 0.67 Correct Answer Incorrect Answer
    B 0.75 Correct Answer Incorrect Answer
    C 1.00 Correct Answer Incorrect Answer
    D 1.33 Correct Answer Incorrect Answer
    E 0.65 Correct Answer Incorrect Answer

    Solution

    The asset turnover ratio is calculated as revenue divided by total assets. Using the formula for ROE, we can solve for the asset turnover ratio: ROE = Profit margin x Asset turnover ratio x Leverage 20% = 15% x Asset turnover ratio x (Total assets / Shareholder equity) Asset turnover ratio = 20% / (15% x (Total assets / Shareholder equity)) Asset turnover ratio = 20% / (15% x 2) Asset turnover ratio = 0.67  

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