Question

Assume BDS acquired its main supplier, ABC. As a result of the acquisition, BDS finds that its operating profit margin increased but its ROA remained constant. A decrease in which one of these ratios is most apt to be the reason why the ROA did not increase with the increase in the operating profit margin? Multiple Choice O Loverage ratio O Market-to-book ratio Asset turnover o Debt burden Short-term financing less than one year) decisions commonly occur in the: Multiple Choice 0 capital markets money markets 0 option markets 0 0 secondary markets

Answer 1

Question 1 : Asset Turnover

Asset turnover shows the potential of generating sales from the assets the company owns. When BDS acquired it's main supplier ABC there is possibility that the company has reduced the overheads expenses by bringing efficiency in production which results in Increasing the Operating Profit Margin of the company.

But, The purchase of the ABC could have increased the total assets of the company and net sales didn't grow by that margin which results in lowering the return on assets.

Operating Margin = Operating Profit / Sales

Return on Asset = Net Income / Average Total Assets.

Question 2 : Money Market

Money Market refers to short term financing where the securities which has duration of less than 365 days are used. The Money market instruments are Treasury Bills, Certificatie of Deposits, Commercial papers etc.

While In capital market securitied which has duration of more than a year are used. In Secondary market, Shares and bonds are traded instantly at the price it is traded.

Option market refers to to buying on selling of contracts of the underlying value of a security. This Includes Call Option and Put options.

Question 3 : Nothing

When You trade security through Secondary market, company receives nothing in return. Though the company has keen interest in the share price of the company as it shows the investor perception from their point of view and the ability to raise funds in future.

The Brokerage is received by the agent through the shares are traded and the dollar value is given to the seller of the shares and the buyer pays for them.