Which of the following tends to fall over time? Net profit margin Total asset turnover Retention ratio or Leverage None of the above

Which of the following tends to fall over time?

Net profit margin

Total asset turnover

Retention ratio or Leverage

None of the above

Solutions

Expert Solution

Net Profit Margin: It is percentage of net profit over total sales/revelue. It does not fall over time. Increased Net Profit Margin means increased profitability of a business.

Total Asset Turnover: It is the ability of company to use its assets to generate sales. Higher ratio means higher efficiency of a business. Hence, it should not fall over time.

Retention Ratio: This ratio depics part of retained earnings from net income. It should fall over time. A new company retains more earnings in order to invest them back in the business. Bus as soon as the company becomes more profitable, it starts distributing more dividends than retaining the money. Hence, this ration decreases over time.

Leverage Ratios: These ratios are used to measure a company's level of debts relative to other financial metrics. It includes- Debt to Equity Ratio, Equity Multiplier, Interet Coverage Ratio etc. These ratios don't fall over time. They remain within a particular threshold.

Umair answered 1 year ago

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