Which of the Following Statements About the Quality of Income

question 48

Multiple Choice

Which of the following statements about the quality of income ratio is incorrect?

• A)An increase in operating assets and a decrease in liabilities will reduce operating cash flows and thereby reduce the quality of income ratio.
• B)Seasonal variations in sales and purchases of inventory can cause wide deviations in the quality of income ratio.
• C)When sales are growing,receivables and inventory normally increase at a faster rate than accounts payable,which often causes cash flows from operating activities to be less than net income.
• D)Aggressive revenue recognition tends to increase the quality of income ratio.

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Definitions:

EPS

Earnings Per Share, a measure of a company's profitability that divides its net profit by the number of outstanding shares.

ROE

Return on Equity; a measure of financial performance calculated by dividing net income by shareholders' equity, indicating how efficiently a company uses its assets to generate profit.

ROCE

Return on Capital Employed, a financial ratio that measures a company's profitability and the efficiency with which its capital is used.

Capital Structure

refers to the mix of debt and equity financing that a company uses to fund its operations and growth.