Which of the Following Best Describes the Profit Margin Ratio

question 45

Multiple Choice

Which of the following best describes the profit margin ratio?

• A)It is a measure of the risk and liquidity of the entity.
• B)It measures how much revenue is available after paying for the cost of goods sold to meet other expenses.
• C)It is a measure of the effectiveness of the entity at controlling costs.
• D)It is a measure of the amount of dividends to be paid to the shareholders.

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Definitions:

Accounts Receivable Turnover

A financial ratio that measures how effectively a company collects on its credit sales by dividing total credit sales by the average accounts receivable.

Current Asset

An asset that is expected to be converted into cash, sold, or consumed within one year or within the normal operating cycle of the business.

Eighteen Months

A period of time equal to one and a half years.

Note Receivable

A written promise that someone will pay a business a specific sum of money on a specified date or on demand.