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A. To solve this, it is necessary to calculate profit margin on sales, asset turnover, and return on assets for both companies. Profit margin on sales is net income divided by sales. Asset turnover is sales divided by total assets. Return on assets is equal to the profit margin on sales multiplied by the asset turnover. Return on assets is also equal to net income divided by total assets.

ROA = (Net Income ÷ Sales) × (Sales ÷ Total Assets)

Since Sales in the denominator of the profit margin on sales ratio and Sales in the numerator of the asset turnover ratio cancel each other out, ROA is net income divided by total assets.

Both Company A and Company Z have return on assets of 12%. Company A's profit margin on sales is 12%, while its asset turnover is 1. Company Z's profit margin on sales is 6%, while its asset turnover is 2. Therefore, if Company Z could improve its profit margin on sales to 12% like Company A's, its return on assets would double to 24%. Likewise, if Company A could improve its asset turnover to 2 like Company Z's, its return on assets would double to 24%.

B. Company Z's profit margin on sales is $6,000,000 ÷ $100,000,000 or .06. Company A's profit margin on sales is $7,200,000 ÷ $60,000,000, or .12. If Company Z/s profit margin on sales were .12, its net income would be .12 × $100,000,000, or $12,000,000. Its ROA would be .24, which is twice as high as Company A's ROA. However, this is not the best answer.

C. Return on assets is Net Income ÷ Total Assets. Both companies have the same return on assets.

D. Asset turnover is Sales ÷ Total Assets. It measures how much in revenues a company is able to generate with its assets. Company Z's asset turnover is 2 ($100,000,000 ÷ $50,000,000), while Company A's asset turnover is 1 ($60,000,000 ÷ $60,000,000). If Company A could increase its sales to $120,000,000, its asset turnover would be 2, the same as Company Z's. Assuming no change in its profit margin on sales which is .12, net income for Company A would then be $14,400,000. Company A's ROA would be $14,400,000 ÷ $60,000,000 or .24, which is twice as high as Company Z's ROA. However, this is not the best answer.