Gearing Increases Earnings Per Share When the Return on Assets

question 19

Multiple Choice

Gearing increases earnings per share when the return on assets exceeds the:

• A) firm's return on shareholders' equity.
• B) after-tax cost of debt.
• C) dividends paid.
• D) return on sales.

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Definitions:

Cost of Goods Sold

The direct expenses related to the manufacturing of products that a company sells.

Current Ratio

A liquidity measure that evaluates a company's ability to pay short-term obligations, calculated as current assets divided by current liabilities.

Liquidity Ratio

A financial metric used to determine a company's ability to pay off its short-term liabilities with its existing assets.

Accounts Receivable

Accounts Receivable is an asset account on the balance sheet representing money owed to a business by customers for goods or services delivered on credit.