QUESTION 1 Choose TRUE or FALSE as applicable for each of th

QUESTION 1 Choose \"TRUE\" or \"FALSE\" as applicable for each of the follow items as they pertain to return on investment and related ratios. Between asset turnover and profit margin, turnover is A. TRUE the better ratio for measuring ability to control expenses incurred in generating revenue. B. FALSE Between asset turnover and profit margin, margin is the better ratio for measuring the level of revenue generated by assets invested. A business with a high ROI will always have a high asset turnover A business with a low profit margin will always have a low amount of assets invested. L-:Responsibility center operating income represents the income generated by a center after it has covered all of its own costs.

Solution

A FALSE Profit Margin ration Denotes the amount of profit earned from the total revenue generated (1-Profit Margin Ratio) gives the % of Expenses incurred. The higher the profit margin ratio lower the expense So it helps in controlling the expense B FALSE Asset Turnover ratio gives the amount of Revenue generated on the assets invested in the business. Whereas profit margin ratio is completely on the different lines C TRUE Net profit after Tax /Total Assets (Net profit after Tax/Sales)*Sales /Total Assets (Net profit margin)* Asset Turnover Ratio Any increase in any one will shot up the income D FALSE Taking the equation from above (Net profit margin)* Asset Turnover Ratio Any increase in any one will shot up the income A Company may have less NP Ratio but high Asset Turnover Ratio E TRUE Operating income represents the Operating income earned less related operating expense.