We Can Use the Fixed Assets Turnover Ratio to Legitimately

question 53

True/False

We can use the fixed assets turnover ratio to legitimately compare firms in different industries as long as all the firms being compared are using the same proportion of fixed assets to total assets.

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Definitions:

Operating Income

Earnings derived from the principal operations of an enterprise, not including the effects of interest and tax deductions.

Variable Cost

A cost that fluctuates with changes in production volume, such as raw materials and direct labor costs.

Investment Turnover

A measure of a company's efficiency in using its assets to generate sales or revenue, calculated by dividing sales by the average total assets.

DuPont Formula

A method that breaks down the return on equity into three component parts—profit margin, asset turnover, and financial leverage—to analyze a company's financial performance.