Question

Gamma Co., a manufacturer of medical products, had a 10% return on assets and an asset turnover of 4:1. What was Gamma's profit margin on sales?

A.40.0%
B.10.0%
C. 4.0%
D. 2.5%

Answer 1

To find Gamma's profit margin on sales, we can use the formula: Profit Margin = Return on Assets x Asset Turnover. Given that Gamma's return on assets is 10% and its asset turnover is 4:1, the profit margin is 2.5%.

Step-by-step explanation:

To find Gamma's profit margin on sales, we can use the formula:

Profit Margin = Return on Assets × Asset Turnover

Given that Gamma's return on assets is 10% and its asset turnover is 4:1, we can calculate the profit margin as:

Profit Margin = 10% × (1 / 4) = 2.5%

Therefore, the correct answer is Option D. 2.5%.