Which of the Following Statements Provides an Accurate Description of Financial

question 14

Multiple Choice

Which of the following statements provides an accurate description of financial ratios?

• A) Liquidity ratios use information about current assets and current liabilities.
• B) Asset management ratios focus on the relationship between profits and either average inventory or total assets.
• C) Net margin and return on investment are useful leverage ratios.
• D) Leverage ratios are helpful in assessing how well assets are employed in generating sales.
• E) Inventory turnover is one method for determining the company's financial liquidity.

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Definitions:

Factory Overhead

The total of all indirect costs associated with manufacturing, such as indirect labor, maintenance, and utilities that cannot be directly traced to a specific product.

Indirect Labor

Labor costs for employees who assist in the production process but are not directly involved in the creation of the final product, such as supervisors and maintenance workers.

Indirect Materials

Supplies used in the production process that cannot be directly traced to specific products, such as lubricants for machinery.

U.S. Economic Activity

The total production, distribution, and consumption of goods and services within the United States, reflecting the health of the nation's economy.