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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 ┬а

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