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ROA Asset Turnover Profit Margin COGS to Revenue Carmax 4.46% 1.02 4.37% 0.87 AutoNation 4.25% 2.01...

ROA Asset Turnover Profit Margin COGS to Revenue
Carmax 4.46% 1.02 4.37% 0.87
AutoNation 4.25% 2.01 2.11% 0.83

Does the relative size of the cost of goods sold to revenue ratio help explain the difference in the ROA profit margin and ROA for the two firms?

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Expert Solution

No, the relative size of the cost of goods sold is not relevant in determination of the difference of return on asset profit margin in accordance with return on asset for the two companies because it is due to the Asset turnover ratio which is reflecting the efficiency of the use of different asset by the company because it can be seen that autonation has higher amount of sales generated out of its assets and it has maintained a higher volume rather than maintenance of higher profits so it can be said that the company has right to maintain a very high volume of sales by a very lower AMOUNT of assets so it is due to the volume generation by the company that asset turnover ratio is higher and the profit margins are lower because the volume has been highly generated and the sales has been highly generated but the profitability has not been maintained as it has sold its product at a lower price so the profit margin has relatively shrinked.

jeff jeffy answered 2 years ago
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