Question

Which statement is TRUE?

A.      The two components of RNOA, net operating profit margin and NOA turnover, are independent of each other.

B.      A decrease in net operating profit margin will cause both return on net operating assets and return on equity to decrease, all other things being equal.

C.      If a company has rapidly growing earnings per share, their return on net operating assets must be increasing too.

D.      Return on net operating assets will always be greater than or equal to the pretax return on equity.

Answer 1

B.      A decrease in net operating profit margin will cause both return on net operating assets and return on equity to decrease, all other things being equal.

The above statement is true. Option B is correct.

The net operating profit is used for calculation of both,the return on net operating assets and return on equity. When the net operating profit decreases, return on net operating assets and return on equity both shall reduce.