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    Question

    The Asset turnover is 5 times and Net margin is 3% for PQR Ltd. What is the Return on Investment for PQR Ltd?

    A 15% Correct Answer Incorrect Answer
    B 16.67% Correct Answer Incorrect Answer
    C 8% Correct Answer Incorrect Answer
    D 0.6% Correct Answer Incorrect Answer
    E Incomplete information Correct Answer Incorrect Answer

    Solution

    Here, Return on Investment (ROI) can be calculated using the DuPont formula. It uses the net profit margin and total asset turnover in the calculation of ROI. ROI = Net profit/total investment (or total assets) Since Asset turnover = Sales/Total asset and net profit margin = Net profit/sales), net profit/total asset, by multiplying Asset turnover and Net profit Margin , one can arrive at the ROI. As such, ROI = 5*3% = 15%.

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