If a fiRm Decreases Its Operating Costs, All Else Constant

question 17

Multiple Choice

If a firm decreases its operating costs, all else constant, then:

• A) The profit margin increases while the return on equity decreases.
• B) The return on assets increases while the return on equity decreases.
• C) The total asset turnover rate decreases while the profit margin increases.
• D) Both the profit margin and the equity multiplier increase.
• E) Both the return on assets and the return on equity increase.

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Definitions:

Other Comprehensive Income

Those revenues, expenses, gains, and losses under both GAAP and IFRS that are excluded from net income on the income statement.

Price-Earnings Ratio

A valuation ratio of a company's current share price compared to its per-share earnings, used to evaluate if a stock is over or under-valued.

Future Profitability

Future profitability refers to an entity's potential to generate earnings over upcoming periods, indicating its financial prospects.

Horizontal Analysis

A financial analysis technique that compares historical financial information over a series of periods to identify trends and growth patterns.