If Net Margin increases to 9% while Asset Turnover remains 1.5 and Equity Multiplier 2.0, what is ROE?

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Prepare for the Finance and Investment Challenge Test. Study with flashcards and multiple-choice questions, complete with hints and explanations. Boost your finance understanding and investment skills for your assessment!

Multiple Choice

If Net Margin increases to 9% while Asset Turnover remains 1.5 and Equity Multiplier 2.0, what is ROE?

Explanation:
ROE is equal to net profit margin times asset turnover times equity multiplier. With a net margin of 9% (0.09), asset turnover of 1.5, and an equity multiplier of 2.0, multiply the three: 0.09 × 1.5 × 2.0 = 0.27, or 27%. This shows how profitability, asset efficiency, and financial leverage combine to drive return on equity.

ROE is equal to net profit margin times asset turnover times equity multiplier. With a net margin of 9% (0.09), asset turnover of 1.5, and an equity multiplier of 2.0, multiply the three: 0.09 × 1.5 × 2.0 = 0.27, or 27%. This shows how profitability, asset efficiency, and financial leverage combine to drive return on equity.

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