Question

Boise Corporation reported ROA of 4%, ROE of 6%, and Sales/Total assets ratio of 2.0 last year. What is the company's profit margin last year?
a) 5%
b) 4%
c) 3%
d) 2%

Answer 1

Answer:

d) 2%

Explanation:

ROA = profit margin x assets turnover ratio

ROA = 4%

assets turnover ratio = sales / assets = 2

profit margin = ROA / assets turnover ratio = 4% / 2 = 2%

Profit margin refers to how much money does a company make from its revenue, i.e. how many cents does a company earn from every dollar of revenue. In this case, the company's net profit is 2¢/$