For the current year, Linh Do Accounting Firm reported a revenue of $949,132 and an asset turnover of 2 .The rate of return on average invested assets was 0.08.

What is the company's margin?

(Note : Do not put $ sign in your answer. Keep your answer as a decimal number with 2 decimal places after the point .)

Question

For the current year, Linh Do Accounting Firm reported a revenue  of $949,132 and an asset turnover of 2 .The rate of return on average invested assets was 0.08.

What is the company's margin?

(Note : Do not put $ sign in your answer. Keep your answer as a decimal number with 2 decimal places after the point .)

BlackTom AI · Accepted Answer

We are given the following relationships for the current year: 
- Asset turnover = 2, which is defined as Sales / Average invested assets.
- Return on average invested assets (ROA) = 0.08, which is Net income / Average invested assets.
We are asked to find the margin, which is Net income / Sales.
A key identity in this context is ROA = (Net income / Average invested assets) = (Net income / Sales) * (Sales / Average invested assets) = Margin * Asset turnover.
Therefore, Margin = ROA / Asset turnover = 0.08 / 2 = 0.04.
Thus the margin, expressed as a decimal with two decimal places, is 0.04.
Note: It is not necessary to use the reported revenue of 949,132 in this calculation since the relationship between ROA, asset turnover, and margin already ties these components together through the identity ROA = Margin × Asset turnover. Nevertheless, if you wished to verify using the definitions, you could deduce Net income = Margin × Sales and Average invested assets = Sales / Asset turnover, which would yield the same Margin when substituted into ROA = Net income / Average invested assets.
So, the computed margin is 0.04.

BACC012 Online Quiz- Week 10 | LA010

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