An analyst has provided the following data for PON Corporation:

2021 2022 2023
Return On Equity (ROE) 19.8% 20.0% 22.0%
Return On Assets (ROA) 8.1% 8.0% 7.9%
Total Asset Turnover 2.0 2.0 2.1

Based only on the information above, the most appropriate conclusion is that, over the period 2021 to 2023, the company’s:

Question

An analyst has provided the following data for PON Corporation:

2021	2022	2023
Return On Equity (ROE)	19.8%	20.0%	22.0%
Return On Assets (ROA)	8.1%	8.0%	7.9%
Total Asset Turnover	2.0	2.0	2.1

Based only on the information above, the most appropriate conclusion is that, over the period 2021 to 2023, the company’s:

BlackTom AI · Accepted Answer

Let's break down what the numbers imply across 2021–2023. 
Option 1: net profit margin has decreased but its financial leverage has increased. This aligns with the data: ROA falls from 8.1% to 7.9% (a sign that overall profitability per dollar of assets declined), while total asset turnover rises from 2.0 to 2.1 in 2023, indicating assets are being used more efficiently to generate sales. Since ROA = Net Profit Margin × Asset Turnover, the slight drop in ROA despite a higher turnover implies the net profit margin must have decreased. Meanwhile, ROE goes up from 19.8% to 22.0% even as ROA declines, which points to an increase in financial leverage (equity multiplier) to boost ROE. So the net effect is lower net margin, higher leverage, and a higher ROE. 
Option 2: net profit margin has increased but its financial leverage has decreased. This contradicts the observed rise in ROE alongside a decline in ROA and only a modest rise in asset turnover; decreasing leverage would typically dampen ROE, not raise it, given ROA fell. 
Option 3: net profit margin and financial leverage have decreased. A simultaneous decrease in leverage would tend to suppress ROE, yet ROE increases from 19.8% to 22.0%, so this cannot be correct. 
Option 4: net profit margin and financial leverage have increased. While ROE increases, the ROA decline and flat-to-strong asset turnover imply that margin did not increase; the evidence supports margin decreasing, not increasing. Therefore this option misstates the trend in margin. 
In summary, the combination that matches all three observations—ROA dipping, asset turnover rising, and ROE rising due to higher leverage—is that the net profit margin decreased while financial leverage increased.

COMM_V 370 101-108 2025W1 COMM 370-Practice Midterm-2025-W1

View Explanation

Log in for full answers

Similar Questions

The relationship between the return on assets and the return on equity is identified by the:

A company has an ROE of 12%, a leverage multiplier of 0.65, and a total asset turnover of 0.88. What is the company’s net margin?

Which one of the following is not a factor impacting the DuPont decomposition?

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler