The correct answer is: "d) 67.5%".
The turnover ratio is the number of occasions in which your stock of products has been completely sold during a given period of time. In other words, how fast it sells its inventory.
If in a given period, a company has managed to sell its inventory 4.5 times and each time it does, it gains a contribution margin of 15%, This means that the overall return of investment in that given period will be 4.5 times 15% or 67.5%.
In other words, the investor will get back the money he has invested in 1.48 years. Â
Here,
We are provided with :
1) turnover ratio = 4.5
2) Margin = 0.15
Required:
ROI =?
Now let us see the relation between the ratios provided and the ratio required .
Formula for turnover ratio :
Net sales /Total assets
Formula for Margin :
Net profit / Net sales
Formula for ROI :
Net profit / total assets
Now if we give a close look to the formulas, we can see that on multiplying turnover ratio and margin , we get ROI
(Net sales / Total assets)* (Net profit / Net sales )= Net profit / total assets
4.5*.15 = 67.5%
I hope it makes sense to you :)
