FPGEE for National Association of Boards of Pharmacy (NABP) Practice Exam

What is considered the normal target for the net profit to total asset ratio?

1. 5-10%

2. 10-20%

3. 20-30%

4. 30-40%

The correct answer is: 10-20%

The net profit to total asset ratio is an important financial metric that indicates how efficiently a company is utilizing its assets to generate profits. A target range of 10-20% is considered normal for this ratio. Achieving a net profit to total assets within this range suggests that a company is effectively managing its resources and generating a reasonable return on its investments. A ratio below this range might indicate inefficiency or underperformance in asset management, while a ratio significantly above this range could suggest that the company is operating with a lower asset base relative to its profit, which could be unsustainable over the long term. Therefore, the 10-20% target is recognized as a balance that reflects good financial health and operational effectiveness without signaling potential risks associated with extremely high performance levels.