Question

The profit margin ratio is the only ratio that makes up ROE that can be negative (except in relatively rare cases). Describe how the interpretation of the Asset Turnover Ratio and the Financial Leverage Ratio change based on whether the Profit Margin Ratio is positive or negative.

Answer 1

Explanation:

The profit margin ratio is the only ratio that makes up ROE that can be negative (except in relatively rare cases). ... Therefore, Asset turnover ratio still represents the amount of sales that is generated for each dollar of assets the company owns and always is positive.