Question

If Net Profit Margin = 0.1,Asset Turnover = 2, Financial Leverage = 1.5 then ROE will be ?

Answer 1

Explanation:

Asset Turnover Ratio Formula – Example #1

Let’s take an example for a firm X: –

Net Sales = $100000

Total Assets for the year 2018 = $20000

Total Assets for the year 2019 = $30000

Average Total Assets Calculated as:

Average Total Assets = ($20000 + $30000) / 2

Average Total Assets = $25000

Asset Turnover Ratio is calculated as:

Asset Turnover Ratio = Net Sales / Average Total Assets

Asset Turnover Ratio = $100000 / $25000

Asset Turnover Ratio= $4

This indicates that for company X, every dollar invested in assets generates $4 in sales.